Investing, economics, finance and random thoughts.
Posts tagged investment gurus
Oh No! Market Predictions for 2010…
Dec 26th
Johnny Carson as Carnac the Magnificent
Here they come! The market prognosticators for 2010 are dusting off their crystal balls and sweeping their bad predictions for 2009 under the rug. If you want to read market predictions, I found it more educational to read only the ones from the year before and not the current ones.
I’m going to not name any names and let you read for yourself what was being said:
8 really, really scary predictions
If investors stayed in cash this year they lost money by missing the partial stock recovery that happened. Stocks are up over 25% YTD. Commodities are up 15% YTD. Gold up 25% YTD. Even High Yield “Junk” Bonds (an asset class I don’t like at all) are up almost 30%. Yet investors hiding out in Treasury bonds and cash have all had a rather bad year with either losses or basically zero interest being paid.
Listen to these market forecasters at your own peril. Investors should hold a balanced and diversified portfolio at all times. In my world, that means they should own stocks all the time, bonds all the time, gold all the time and cash all the time. Do this no matter what one thinks about the markets or what financial gurus are saying about the future. A well diversified portfolio will ensure that you can ride out bad markets and make money in good ones. Trying to predict the future can cause investors to make extreme decisions and can lead to huge losses. Always avoid extremes in investing! Financial gurus are into extremes because when they’re right they look like geniuses but when they’re wrong nobody remembers it. Market predicting really is a loser’s game
and I encourage readers not to play it with money that is precious to them.
The Past Does Not Predict the Future
Sep 17th
Johnny Carson as the Amazing Carnac
Have you seen the statement from the SEC that states: “Past performance does not guarantee future results?”
Harry Browne once said that the above was one of the only true things he ever saw come from a government agency. However, it’s also the core belief behind the Permanent Portfolio strategy.
While I have presented an analysis of the portfolio performance from the past, it is important to remember that this does not prove anything about the future. It just shows that the strategy has survived to this point. This means that there is no guarantee in the world of investing no matter what strategy you are using. Whether it’s the Permanent Portfolio or something else.
However, what the Permanent Portfolio attempts to do is give you wide enough diversification so you have a better chance of prospering in an uncertain future. This is not a guarantee, but an attempt to disperse the risks of investing across disparate asset classes so a very bad event that happens to one part of the portfolio is not fatal to the rest. So while nobody can promise the portfolio strategy will always work going forward, what we can do is diversify in a way to try to minimize the impact of the unpredictability of the future. That’s simply what the Permanent Portfolio tries to do.
Over at the Bogleheads forum, Taylor Larimore reminded readers on the massive Permanent Portfolio Thread about this statement. To build upon this idea, I went through the first chapter of Harry Browne’s classic Why the Best-Laid Investment Plans Usually Go Wrong and pulled out quotes that speak directly to the issue: