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Earlier this week, we saw an example of a phenomenon that frequently distorts people’s perception of the stock market.

On this last Tuesday, Oct. 19, the Dow Jones Industrial Average, the most frequently cited proxy for “the stock market,” took a 165-point dive to close at 10,978.  Much of the media was in near frenzy with stories such as “Stocks fall sharply worldwide” and “Stock market takes biggest one-day hit in months,” feeding the perception that the market was rapidly going to pot.

Overblown media coverage of bad days like this can give people the wrong perception of what’s really going on in the market.  A couple of things need to be pointed out:

First, that 165-point drop sent the market way back to a level it hadn’t seen since . . . less than two weeks before! That’s right, on Oct. 7, the market was at 10,948, or 30 points lower.  So basically, all that happened on Oct. 19 was that 12 days worth of gains had been erased.

Second, over the following two days, the market rose 168 points, putting the Dow 3 points higher than it was before the dip!  But there was very little coverage in the media of this upswing.

To sum it up, this last Tuesday’s drop in the Dow was no more than a tempest in a teapot.  The market is still up 5.3% for the year and a whopping 70% from the low hit in March 2009.  However, the way the media continually focuses on the negative, one would think that we’re on the brink of a market collapse whenever we have the occasional bad day, which inevitably happens and will again in the near future.

It’s been said over and over again:  if you’re investing for the long term, as most of us are with our 401(k)s, IRAs, etc., you need to ignore the clamor in the media and stay focused on your long-term goals.  Of course, I don’t know what the market may do tomorrow, next week or next year.  But I am confident that when I get ready to retire, I’ll have a lot more money in my 401(k) than I do now.  You probably will too if you keep your head, tune out the noise, keep putting away money, and continue to be patient.

Now there’s a blog title that will likely get attention!

(Bear with me . . . there really are a couple of genuine, practical points that I’m going to make.)

The problem is that many of us think that getting ahead financially is a matter of coming into a big inheritance, hitting the lottery, or getting in on some “exclusive” investment opportunity that’s going to make us rich.  In other words, some big one-time event is going to put us over the top, and we’ll be set for life.  Unfortunately, it almost never works out that way.

Now a few of us will get some kind of inheritance from our parents, and that will be helpful.  When my father died, I got most of the money I needed to buy a house.  But while that windfall did help me out quite a bit, it sure didn’t leave me set-for-life rich.

Regarding option two, well, let’s be honest:  no one reading this blog is going to win $1 million or more in the lottery.  Sorry, it just ain’t gonna happen, that’s all there is to it.  I’m going to play center for the Boston Celtics before you hit the winning powerball numbers.

That leaves the last option, getting in on some big investment opportunity, be it a hot stock tip or the guy you know at work who has just invented a new-fangled kahoozy in his garage that’s sure to sweep the nation and is looking for investors.  The chances of this happening are only slightly more probable than winning the lottery.  I’ve made a lot of investments in my time — some have done great, some just OK and a few have been disastrous.  But the point is, none of the above options can be counted on to help you really get ahead financially, that is, get on top of your finances so that you feel really secure.

No, I’m recommending just two sure-fire ways to get ahead:

(1) Watch your spending, that is, don’t spend more than you make, cut unnecessary expenses, pay off credit cards

(2) Save more.  Set aside money every month to put into your 401(k), IRA, or savings account.  Make this “payment” first — treat it like was a regular bill.

Yes, these are dull admonitions  — not even “secret” contrary to the title of this blog.  But nonetheless they’re still true. The simple, obvious fact for most of us is that we just need to watch our expenses, don’t spend more than we make, and save more, and that’s how we will get ahead.  All the fancy investment strategies in the world won’t make any difference if you don’t do these things. (And remember, this is an investment advisor saying this.)

From time to time you hear of some person who seemed to be of very modest means who dies and leaves millions to some charity or school.  “I never had any idea she had all that money,” the neighbors say.  It usually turns out that the person had lived frugally and had been setting aside small amounts for years and years, and over time, the money accumulated into a small fortune.

Most of us don’t have an ambition to leave this kind of legacy, although I could think of worse legacies to leave.  The point is that we would do well to change our thinking, change our perspective, from the idea that a big one-time infusion of money will turn our finances around to instead just do the simple little things, day-by-day, that will make us financially secure in the long run.

Rather than try to dazzle you with my own wisdom, here are a few choice comments by folks who really know the ins and outs of investing. If you spend 10 minutes reading the following, you will be more knowledgeable about money management than 90% of the people who are in the stock market today.

– Jeff


“The best course is to invest regularly in quality companies or well-run mutual funds, ignore the markets ups and downs, and cover your ears when the ‘experts’ are talking. It takes a long time to make enough money to retire, and rushing the process will only ensure failure.”

– Robert Torray, manager, The Torray Fund

“When the markets are choppy, the best approach is usually to sit tight, make sure your portfolio’s asset mix and your long-term investment strategy are sound, and simply ride out the storm.”

– Gus Sauter, Chief Investment Officer, Vanguard Mutual Funds

“Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.” (emphasis mine)

– Warren Buffett, richest man in the world

“Successful investing isn’t about knowing more than anyone else. It’s about having the discipline to stick with your plan regardless of the latest headlines. Realize that occasional market declines can actually be beneficial, allowing you to buy stocks at bargain prices”

– Austin Pryor, Investment Advisor and Author, Sound Mind Investing, Dec. 2007

“Stocks are about the only thing people avoid when they go on sale.”

– Warren Buffet, Financial Planning, August 2007

“Panic and greed are not investment strategies.”

– Liz Ann Saunders, Chief Investment Strategist, Charles Schwab & Co.

“When it comes to investment information, make like an ostrich: stick your head in the sand. If you’re a long-term investor, how your portfolio performs today or tomorrow is irrelevant.”

– Wall Street Journal columnist

“I have no idea what the market will do next week, or next month, or next year. Zero. I don’t think about it, and if I did think about it, it wouldn’t do any good. The main thing the investor needs is the proper temperament. He doesn’t need to have an IQ of 150. He doesn’t have to be an expert in accounting. But he does have to keep his balance when untoward things happen in the market. The reason investors do poorly is they beat themselves. The Dow went from 66 to 11,400 in the last century. You’d think it would be pretty hard not to do well when the Dow moves from 66 to 11,400. The people who didn’t do well were the people who panicked and sold when stocks were very unpopular or bought at high prices when stocks were very popular. So, you have to have an emotional stability. If you have an emotional stability and stick with American businesses, you’re going to do fine.”

– Warren Buffett, richest man in the world (SMI, May 2007)

“Don’t let your emotions drive your investment program, because you will be thinking of getting in and out. For investors the best rule is by and large to ignore the daily moves of the stock market. The stock market is a giant distraction for the business of investing.”

– John Bogle, Founder, Vanguard Investments, second largest mutual fund company

“It is the passage of time that gives most approaches to the stock market the chance to work. I’m not talking about weeks or months, but years. Most of us, by nature, are results oriented. Without performance, we lose interest. As such, lack of patience is probably the single greatest impediment to success in the stock market. Remember, success in the market takes time.”

– Sir John Templeton, legendary international investor (SMI, Feb. 2008)

“[To be successful investors] people don’t need extraordinary insight or intelligence. What they need most is the character to adopt simple rules and stick to them.”

– Benjamin Graham, noted investment analyst (SMI, Feb. 2008)

“Against all reasonable expectations, we seem to somehow expect to astutely select the cream of the investment crop, ride our holdings to the crest of a glorious market, and then wisely take our profits. We’ll move to the sidelines and let other (presumably less savvy) investors suffer the frustrations of the inevitable correction that follows. When we think like this, we’re living in a fantasy world, and when our fantasies don’t come true, we often react with bitter disappointment anger or fear.”

– Sound Mind Investing Newsletter

“It cannot be said too often that the road to ruin lies in dogmatizing on charts, systems and generalizations.”

– William Hamilton, 1909, Editor of Wall Street Journal

“[How does an investor get a good night’s sleep?] Be balanced, be diversified, think long-term, and tune out the noise. Don’t feel compelled to look at the prices in the paper or watch the financial shows on TV every day. You’ll get euphoric in the good times and despondent in the bad. Your investment provider’s job is to help you create wealth in the long run. Not in the next two weeks, not in the next news cycle.”

– John Brennan, Chairman, Vanguard Investments, 2nd largest mutual fund company

“Part of the problem is that, while some news does involve sharp and sudden stock reactions (only when it involves surprise), most of the never-ending flood of daily news is routine, insignificant and meaningless in terms of durable impact. It is important to PR firms, journalists, TV reporters and traders because it gives them a means of making a living. But to the long-term investor, it is little more than filler and noise.”

– Individual Investor newsletter, June 2008

“What matter for more than ups and downs [in the market] is your ability to make progress toward a specific goal, such as buying your first home, paying for your children’s college education or funding a secure retirement. In my experience, the best way to achieve such progress is to create a long-term investment plan and then stick to it. . . . I’ve been observing Wall Street for four decades — long enough to know that short-term movements in the market are just that: short-term. Investors who stick with a well-conceived, long-term plan will still be reaping the benefits when today’s headlines are long forgotten.”

– Charles Schwab, Chairman, Charles Schwab & Co.

“If you haven’t been investing with borrowed money, then you can survive any bear market. You can just maintain your strategy and wait it out. But that’s looking at it negatively. Lower stock prices are bad only for people who have to sell. They offer temporary bargain prices for people who have the money to buy.”

– Austin Pryor, Sound Mind Investing, Aug. 2008

“You will never go broke taking a profit.”

– Bernard Baruch, 1928, Wall Street tycoon and presidential economic advisor


“Research has shown that managing savings and spending rates is the single biggest determinant of financial success. I’ve always found this knowledge comforting because managing these two variables is something every individual can do. We have no control over markets going up or down but we can control our own spending and saving.”

– Charles Schwab, On Investing, Summer 2008

“Annual income 20 pounds, annual expenditure 19.6, result: happiness. Annual income 20 pounds, annual expenditure 20.6, result: misery.”

– Charles Dickens


“Tax refunds can feel like found money — but it’s important to remember that you worked hard to earn that cash. Keep in mind that a big refund means you paid too much in taxes the previous year, in effect giving the government an interest-free loan. Instead, ask your employer to reduce your tax withholding so you won’t overpay your taxes. You may be able to significantly improve your financial prospects by making sure that your money works equally hard for you.”

– Schwab Investor, Feb. 2007


“Unfortunately, plenty of otherwise rational Americans take the money from their 401(k)s when they leave a job and spend it. In a 1995 study released by the U.S. Department of Labor, 68% of the Americans over the age of 40 who changed jobs cashed out on their 401(k). And a staggering 84% under the age of 40 took their money instead of rolling it over into another tax-deferred investment plan. This is sheer lunacy.”

– Knute Iwaszko and Brian O’Connell, authors – “The 401(k) Millionaire,” (SMI June 2007)


“Attempting to forecast whether the market is at a peak or in a valley — and whether to buy or unload stocks as a result — is a waste of time. I don’t know anyone who has been right more than once in a row.”

– Legendary investor Peter Lynch

“After nearly 50 years in the business, I do not know of anybody who has done it [market timing] successfully and consistently. I do not even know anybody who knows anybody who has done it successfully and consistently.”

– John Bogle, Founder of Vanguard Mutual Funds

“Trying to time the market in a dangerous game, fraught with peril. Buffet doesn’t do it. Nor do we. The truth is, we don’t know what’s going to happen tomorrow. Nobody does. But we do know that buying and holding a onto a broadly diversified portfolio of undervalued stocks through good times and bad pays off in the end.”

– John Buckingham, editor, “The Prudent Speculator” newsletter

(On market timing) “As you watch and wait [for the market to go back up], it’s easy for a kind of paranoia to creep into your thinking: ‘The market will probably fall again soon, and the drop will likely start the week, if not the day, after I get in!’ The truth is, of course, that the market doesn’t know you exist. It’s going to do what it’s going to do, based on the economy and corporate profits, whether you’re in or out. Over the long haul, it’s going to go up. Your prosperity will will be enhanced if you let your capital ride along with it.”

– Austin Pryor, Investment Advisor and Author (SMI, March 2007)

“It’s important to keep in mind that since we can’t know the future with certainty, no investment portfolio will ever be perfectly positioned to profit from upcoming events. In retrospect, it is always possible to point to ways we could have made more money (or lost less money) than we did. The human inability to make fully accurate predictions means it’s pointless to think of the ‘right’ investment portfolio simply in terms of making the highest possible profit. If that is your approach, you will always be second-guessing your decisions, and you’ll end up frustrated and disappointed.

“Instead, the ‘right’ portfolio is one that realistically faces where you are right now, looks ahead to where you want to go, and has a very high probability of getting you there on time.”

– Austin Pryor, Investment Advisor and Author (SMI, January 2009)

“The sole reason why [we don’t] pay any attention to general market factors is that we are no good at making such prognostications. We don’t think anybody else —perhaps with the exception of a few geniuses who are unknown to us — is any good at it either.”

– Marty Whitman, Manager, Third Avenue Fund, former Morningstar “Fund Manager of the Year”

“I worry about people trying to trade their way to success, rather than buying and holding. Don’t try to time the market unless you do it for a living — and even then it’s very hard to do.”

– Lee Kranefuss, Barclay’s Global Investors


“When someone with experience proposes a deal to someone with money, too often the fellow with money ends up with the experience and the fellow with experience ends up with the money.”

– Warren Buffet on hedge fund managers