Looking Ahead – With the Right Frame of Mind

Monday, January 4, 2010

1197866_open_door_classics_3Whew! Predictions, forecasts and top pick lists everywhere. Put them all together, and we have a mixed bag of prognostications. So, who is right?

There is no way to know which investment advice will pay off. After all, the future is uncertain, so tomorrow cannot be predicted accurately. The solution? With this economic and market environment, I believe adopting the right frame of mind is a necessary first step. Here’s what I mean…

We are reading about mega-trends, mega-problems, mega-solutions and mega-theories. The magazine, Utne, offers an excellent example. It’s cover article is “Get Rich Now – How to Prosper in the New Economy” (Jan-Feb 2010, page 39). No, it’s not a reprint of similarly titled articles a decade ago about how the US economy had changed forever. Rather, it’s about a massive US cultural shift. Here are two statements that show the article’s mega-focus:

The economy will never be the same. It’s time to rethink our definition of “the good life.”

…what needs to be eradicated, or at least greatly tempered, is consumerism: the obsession with acquisition that has become the organizing principle of American life.

This article is similar to others that forecast permanent changes in US culture and beliefs – and they are destined to be incorrect. Virtually all commitments of radical change borne of mega-events are dropped when normal times return.

So, the first aspect of frame of mind is to expect that the historical drivers of American life will continue. This means people will keep seeking improvement, creativity, advancement and happiness – and, yes, it means they will borrow and spend to achieve those desires.

The second aspect of frame of mind is a focus on the future. There are many sayings to help us overcome hard knocks – e.g., “You need to get over it and get on with life” and “Today is the first day of the rest of your life.” Hackneyed, perhaps, but accurate.

And with investing, there are two important future times:

  • Six months out because that tends to be how far analysts and investment managers can “see” into the future. Therefore, today’s investment prices incorporate those expectations.
  • Five years out because that is the minimum time commitment you should make when buying long-term investments like stocks. This gets us beyond current concerns and short-term volatility.

Tomorrow, I will examine what combining these two components into an investment frame of mind gives us.

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January 2010