12 Steps To Getting Your Investment Mojo Back

Wednesday, February 10, 2010

Remember when you liked owning US stocks? You researched stocks and/or fund managers – or hired a professional to do it for you. You diversified your portfolio to control risk. And you rebalanced your holdings periodically, keeping your long-term allocation in place. You may even have expanded your US stock holdings when the media announced in July 2008 that other investors had “capitulated,” so bargains were at hand.

Then – WHAM! – everything fell apart – twice. Risk was everywhere, and diversification didn’t help. In a few chaotic months, all those returns earned from your efforts had evaporated. First, there was the panic sell-off in September-October 2008 following Lehman’s bankruptcy and with the specter of widespread financial disaster. Then, following a couple months of positive returns, the February-March 2009 sinkhole occurred, with prices dropping daily, ending on an otherwise inconsequential day: March 9.

Somewhere in all that mess you likely stopped rebalancing. What was the point, with stocks continuing to fall? You may have sold some or all of your stocks, following the age-old advice, “If investments are keeping you up at night, sell down to the sleeping point.”

And now? Now seems to be a swirl of conflicting information and opinions. The news is relentless. Even non-investment adversities cast a pall over the investing world. Performance is unfathomable – the stock market is up significantly from its March 9 low, but it’s only where it was 10 years ago (12 years, if you account for inflation). All you know is that you are still underwater.

You may have tried other ways to earn some return: oil, gold, foreign currencies. Or you may have tried the hedge route, only to have your short positions show big losses or ending up owning mediocre “sophisticated” derivatives that promise return without risk (aren’t they the things that caused some of the problems?). Or you may have said to heck with it and bought bonds – after all, it’s the safest stuff with any kind of a yield.

But you remain unsatisfied – worried that you are missing out and are going to miss out on something. So, what to do? How do your regain your investment mojo, allowing you to take action confidently, brighten your outlook and get on with your life?

Here are 12 steps that can revitalize you and your portfolio – and put you on the path to regain your investment mojo:

First, reset your thought process:

  1. Resist looking back. Stock prices are always based on future expectations tempered by uncertainties. To invest well, we must put ourselves into that future. Being mired in yesterday’s results practically ensures that today’s actions will produce regrets tomorrow.
  2. Realize you are not alone – even many major institutions are shell-shocked. So, no need for regrets or guilt. This is what investing experience in bad times feels like. Now, on to tomorrow.
  3. Have faith. This doesn’t mean ignoring the facts. Rather, it means believing that the way the US works ensures that people are focused on improvement and growth.
  4. Ignore the pundits – especially the loud ones. Like the Wizard of Oz, they make their living trying to make people think they know it all. However, behind the curtain, they are average people, perhaps with a dose of snake oil salesman.

Plan using traditional approaches and investments.

  1. A good place to start is by reading some investing classics. Not the “Get Rich…” type of a couple years back, but the ones written by long-time investment experts.
  2. Remove today’s noise by turning off the TV and ignoring the market during the day. Control when you think about investments. Make it a quiet time when your pulse is normal.
  3. Don’t feel you need a grand scheme or a fancy, multi-page, full color plan. A one-page outline will do it – a place to state your goals, your investing approach and your guidelines.
  4. Exclude the “new” approaches and investments. Wall Street loves to create stuff that would have won big in yesterday’s markets. Then, when yesterday doesn’t repeat, Wall Street moves on, leaving behind disappointed – and poorer – investors.

Take action.

  1. In times of doubt, the best approach often is: “Just do it!” Waiting for the perfect moment in investing often means getting left behind. Remember: You don’t have to hit a bottom or top to make money in the stock market. You just need to be there when the prices rise.
  2. Schedule out your new investments. Like entering a cold swimming pool, take your time getting in to get accustomed to the environment. As you build your US stock positions, you also will build your confidence.
  3. Buy individual stocks with at least some of your funds. I realize that to investors using funds or financial advisers, this may sound questionable. However, only by learning about and owning individual stocks can you truly build your understanding and feel for the stock market. Then, with experience, you will increase your confidence. This is a lifetime activity where expertise can grow continuously. Starting when times are uncertain, like now, is the best (versus jumping into hot stocks at a market top).
  4. Begin with the stocks of leading companies that pay dividends. Buying a stock rarely occurs the minute before it takes off. In the short run, any stock can go up,  sideways or down. By buying a leading company stock from which you receive dividend income, you can avoid getting shaken out by apparent malaise or weakness.

In my next write-up, I will provide some examples of how to pick promising company stocks.

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John Tobey on Seeking Alpha

Seeking Alpha Certified

February 2010