October 3, 2011


I bought another book at the Dollar Store last week. This one is called “PANIC: the Story of Modern Financial Insanity” by Michael Lewis, a bestselling author on the stock market. Mainly, Lewis gives us stories from the 1987 crash. While they are interesting as history, they provide little insight into the future. What financial markets do best is find new loopholes which inevitably create new disasters.

Wall Street is a great place to accumulate wealth and a great place to lose it. And while its gyrations are unpredictable, there are plenty of pundits foolish enough to try. Unless one puts equal faith in Astrology, Tarot Cards and the reading of chicken entrails, one would wise to ignore them. The stock market is a divine creation meant to remind us that events in the universe are random.

Today, for example, a friend sent me yet another pundit’s prediction that the financial sky is falling. My friend advises me to sell my stocks and revert to cash.  She could be right. But rather than live like Chicken Little, I gave myself advice years ago which I continue to follow and which has served me well.

           1. I don’t invest money I’m not prepared to lose. The stock market is a place to gamble on the future — pretty risky stuff.

          2.  I have and stick with an honest broker. I don’t switch to the high flyer of the moment. 

          3. I do my homework on the companies I buy. If one carries too much debt, it’s probably an investment for the high rollers and not for me. 

          4. Young investors have time to make mistakes. Time isn’t on my side. I hedge my bets by choosing blue chip companies with good balance sheets and a history of paying dividends year after year.  

          5. I don’t try to predict what the market will do next and I don’t listen to pundits. I know what happens to lemmings.

Nothing I’ve written is meant to be investment advice to anyone. Being in the market is a gamble. But I don’t believe it’s like being in Las Vegas. With a plan and a bit of courage, one has a higher chance of keeping one’s shirt.  Having a strategy is a pretty good idea for the whole of life.