Friday, September 17, 2010

American Alzheimer Investors

I have been living temporarily with an older lady who is afflicted with dementia. She forgets a lot and repeats herself a lot. A lot! She lives in her own little fantasy world.

But for me, it’s easy to live with someone who lives in her own little world, who forgets and who repeats herself over and over. After all, I’ve been in the investment business since 1975.

David Rosenberg of Gluskin Sheff observed that the S&P 500 index is currently at 1,109 and reminds us that it first hit 1,109 on April 1, 1998.

During the whole 12 years and five months since April 1998, our friends in the financial planning business have been telling us the market goes up on average about 9% a year and we should buy high-quality stocks and hold them for the long term. When the stock market went up, they were happy; their buy-and-hold slogan could be repeated like a meditation mantra. And the followers of these dollar-store gurus were lulled into a mindless paradise, dreaming of financial security. No worries: soon we’ll all be rich like Warren Buffet. And when the market went down, they repeated the same mantra. Eventually, they were right: the market did bounce back up.

But they seem to have forgotten the part about the market going up 9% a year. All those planned projections of financial well-being based on a 9% return seem to have disappeared like a sweet dream in the morning.

Human nature is an amazing thing. In my investment book Beyond the Bull, I discuss the ways in which investors can be their own worst enemy. Our minds naturally try to avoid pain. It’s a painful experience when US stock market investors realize that they have had no growth for 12 years. Our minds seek to avoid these painful messages. Sometimes it’s less painful to slip into a state of voluntary Alzheimer’s and forget about investing ― to repeat the ‘buy and hold for the long term’ slogan over and over. And to fantasize about a recovering economy.

I am enjoying the opportunity to teach my mother. Medical professionals say Alzheimer’s patients can’t learn, that they are, in fact, un-learning what they once knew. And, to a certain extent, the professionals are right. But I have been successful in teaching her how to breathe in a certain way. My years in the martial arts have taught me that deep, controlled breathing relaxes the body and eases muscular tension. Breathing in that way relaxes the body and helps us avoid physical pain. My mother has been able to learn to use my breathing technique to help ease her headaches. I wish I could teach the voluntary Alzheimer’s investors some techniques to ease their financial headaches.
American stock market investors need to learn about selling their stocks. Buy and sell ― not just buy. It’s a little like breathing. We buy stocks at certain times (breathe in) and sell them at other times (breathe out). Holding your stocks when they are going down is like holding your breath. If you do it long enough, you will not like the results.

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 (Bullmanship Code = SS32).

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