EMPIRICAL EVIDENCE DRIVES ME
Having been in the securities investment business for more than 45 years I bear witness to some important investment truths:
THE WHOLE IS THE SUM OF ITS PARTS
Movements in all investment markets, i.e., stocks, bonds, currencies and commodities are interrelated for numerous reasons. For example, stock prices invariably bottom and begin to rise when interest rates are going down. This usually happens because the economy is weak, and the Federal Reserve Board has loosened monetary policy. The public's emotions at these times usually make people wrongfully afraid to buy stocks...but that's when they are cheap.
Conversely, stock prices usually begin to go down when the yield curve is inverted (short term rates are higher than long term rates) and the economy is strong. The yield curve is inverted because the Fed is now trying to slow down the economy and put the brakes on price inflation. Stock prices are up, and it is probably a good time to do some selling. Investor's emotions, again, make that a hard thing to do.
Gold and other hard commodities usually rise in price when the U.S. $is weak. A weak $may be forecasting a rise in interest rates. When the price of oil goes up, oil service company stocks usually do better than most other stocks and airlines do far worse.
Paying attention to just one asset class disregards many of the forces that actually drive that asset class. It pays to watch them all in a disciplined non emotional way for signs in one or two that will affect others.
THE WHOLE IS ALSO GLOBAL
Not only is the whole the sum of the parts, today it is also global. Many major product lines and even major service companies today are foreign. To invest just in Detroit’s auto companies omits opportunities in Japan and Europe….or just in Californian wines omits those made in Chile, Spain and France. Most electronic products are designed in the U.S.A. but manufactured overseas…in Asia. No TVs, which have recently had a major, very profitable format change to flat screen and HD, are made in America. Wal-Mart, the world’s biggest retail company imports much of its product line from China whose foreign exchange reserves are growing by leaps and bounds while America's decline.
The world’s largest protection and surveillance company, SGS, is Swiss and the largest and some think best hotel management company, Accor, is French.
Said simply, global portfolio investment makes sound sense. We need to look at the whole world.
TIMING IS KEY
If you have an eon to wait, but as Keynes said “in the long run we are all dead,” buy and hold (if you've got the right investments) does work. But in the modern, volatile world where investment results are measured more frequently than in eons, or even in the long run, changes in capital market prices almost always have a greater bearing on investment results than do dividends and interest.
Thus dispassionate timing of purchases and sales plays a very important role in investment decisions. This is where Before the New$ comes into play.