Stock Investing: Stick To Long-Term Strategies

Given the ongoing volatility in the Dow (^DJI) and the S&P 500 (^GSPC), I realize some of you are considering changing your investment strategies. Therefore, I want to share with you a conversation I had with one with a friend at Zacks Investment Management about the current market environment.

The financial advisor commented that he is continuing to sign up new clients. When asked why, his response was that many people were angry at their current advisors and wanted someone else to manage their money.

Financial advisors are like any other profession; some are very smart and talented, whereas others border on the edge of incompetency. In the middle is a mix of people who generally do a decent job managing their clients’ money.

The problem in bear markets is that many individuals let anger interfere with rationale decisions. Rather than stick with strategies that have worked in the past (and have been proven to work over the long-term), many investors look for alternatives. Often these changes do more harm than good.

As an analogy, the same thing happens with dieting. Individuals who lose weight and then switch diet plans when the pounds start to come back are likely to gain even more weight than those who go back to the diet plan that originally worked for them. (Thanks to my wife for showing me this article in the current issue of Self magazine.)

Investing is no different. If a diversified portfolio comprised of fundamentally-sound stocks with rising earnings estimate and attractive valuations has worked in the past, why change the strategy now?

Bear markets are painful, but they are also temporary. Remember, investing is about the long-term. So stick to strategies that have proven to work over the long-term.

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Comment by Austin

2008-12-14 02:54:14

Long term strategies are certainly the best. Like Warren Buffet said you are buying a business so if in the long run it is a WELL RUN business with power in the market and a competitive edge it really doesn’t matter what misinformed speculators and traders try to price the stock at in the long run you will WIN.

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Comment by Bill M.

2008-12-15 11:10:28

Long term is the way to go, if you want to do short term, you are not investing, you are gambling and speculating. Vegas might have a bigger payoff.

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