Tuesday, July 13, 2010

Prophets of Doom, Prophets of Profits

July 7, 2010

The stock market can be confusing at times.

For example, eminent market timer and financial astrologer, Arch Crawford, has been writing about a catastrophic event that will occur at the end of this month. Before you balk at the notion of a financial astrologer, understand that Crawford is one of the few investment advisers who correctly predicted the 1987 stock market crash and has received the prestigious stock market Timer of the Year award on several occasions. He is warning of an historic tragic event at the end of July, beginning of August 2010.

On the other hand, we see our G8 economic leaders cautiously, optimistically telling us everything is OK… the 2008-9 banking crises are over and the economy is struggling ahead. The danger has passed.

Arch Crawford is using objective planetary alignment as the basis of his advice. But, other astrologers are observing the same data and coming to other conclusions. Because of his stellar track record, many of Crawford’s followers have sold all their stocks.

And, of course, the G8 economic leaders are using objective economic data to formulate their Don’t Worry, Be Happy hypothesis. And because of the prestige and authority accorded to theses elite officials, many business owners and managers are forging ahead with their investments.

What should we do?

In my investment book, Beyond the Bull, I warn investors not to be bamboozled by economic bullmanship. Don’t react to some salesman’s persuasive economic forecast. By its very nature, investment advice is biased. The giver of the advice is always trying to persuade you to do something. Arch Crawford is urging his subscribers to sell out of the stock market. The G8 leaders are telling us it’s OK to borrow and spend again. And because it’s persuasive, financial advice can never be totally objective. This truth is at the very core of what the stock market is: it’s about thousands of salesmen trying to persuade millions of customers to buy or sell something. Stock market advice is never objective data: it’s all persuasive.

This fact, once thoroughly understood, will make the difference between your long term success or failure as an investor.

Most investors like to stay informed about the financial world and formulate a plan based on the advice of those they trust. This is not a correct way for you to manage your financial affairs. It results in confusion and low long term financial returns.

There are good investment advisers and there are bad ones. Even the best don’t get it right every time. It’s a percentage business: a certain percentage of the advice will work and a certain percentage will not work. Our problem as individual investors is knowing whose advice to follow and when to follow it.

Question: How can we obtain objective investment advice?
Answer: Look for it.

Most investors are not looking for investment information. Most are passively tuned in to the never-ending stories of profit and doom in the financial world. Most are simply being entertained by the financial press. If only we would exchange our love of financial news stories for a need for objective data; we would change our investment world. We would go from the world of salesman’s stories to the world of the financial survivor.

It’s like the difference between the mother who listens to all the breakfast cereal ads on kids’ television and buys a box of brightly colored candy-cereal and the health-conscious mother who studies nutrition and helps her children make their breakfast from scratch. It’s a different way of looking at your world. It takes work to live in a different world.

What world do you want to live in? A recently published study was released by the Canadian investment firm, Gluskin Sheff: it ranked the best and worst performing American investment assets over the past 10 years. Gold was the best performer at 33%. Bonds were 11%. The American stock market lost money over the past ten years; -2.3%. The higher the percentage of gold in your portfolio, the better your ten year performance. The higher the percentage of stocks, the worse ten year performance. The study also ranked investment real estate, corporate debentures and cash. Most of us would have wanted to own the top performers and not the bottom. Why didn’t we? Because we chose the entertaining world of the stock market. Because we have a trusting relationship with someone who also lives in the world of the stock market. We mimicked the mother who watched kids-TV and bought the candy-cereal.

Even if there is no catastrophic event this summer, we should follow Arch Crawford’s advice anyway. Maybe we should just sell our stocks and re-plan our approach to the investment paradigm. Maybe it’s time to look for another way to think about investing.

And to those readers who have good exposure to the bond market and to gold, congratulations: welcome to my world.

To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit www.gobeyondthebull.com (Bullmanship Code = SS32).

Contact Ken directly at ken@castlemoore.com.


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