Gyroscopic Investing

25 Important Things to Remember As an Investor, from the Motley Fool.

I like #6.

http://www.fool.com/investing/general/2 ... tth0000001

1. The intrinsic value of the stock market as a whole increases by about 1% every six weeks. That's what you'll get over the long term. Everything else is noise.

2. Several academic studies have shown that those who trade the most earn the lowest returns. Remember Pascal's wisdom: "All man's miseries derive from not being able to sit in a quiet room alone."

3. The single best three-year period to own stocks was during the Great Depression. Not far behind was the three year period starting in 2009, when the economy struggled in utter ruin. The biggest returns begin when most people think the biggest losses are inevitable.

4. Economist Alfred Cowles dug through forecasts a popular analyst who "had gained a reputation for successful forecasting" made in The Wall Street Journal in the early 1900s. Among 90 predictions made over a 30-year period, exactly 45 were right and 45 were wrong. This is more common than you think.

5. There is virtually no correlation between what the economy is doing and stock market returns. According to Vanguard, rainfall is actually a better predictor of future stock returns than GDP growth. (Both explain slightly more than nothing.)

6. The Financial Times recently wrote: "In 2008, the three most admired personalities in sport were probably Tiger Woods, Lance Armstrong, and Oscar Pistorius." Given the volume of recent insider trading charges, something similar could occur among the investing "greats."/i]

And so on...

My favorite is #5

5. There is virtually no correlation between what the economy is doing and stock market returns. According to Vanguard, rainfall is actually a better predictor of future stock returns than GDP growth. (Both explain slightly more than nothing.)

The next time I want to know what the stock market is going to do I know to turn on the weather channel.

notsheigetz wrote: My favorite is #5

5. There is virtually no correlation between what the economy is doing and stock market returns. According to Vanguard, rainfall is actually a better predictor of future stock returns than GDP growth. (Both explain slightly more than nothing.)

The next time I want to know what the stock market is going to do I know to turn on the weather channel.

Yeah...that's a good one.

It's funny that this is a pretty well known fact and yet...

Those are some good observations. But I like Harry Browne's rules more. Really the best advice you can give someone of a very general nature is to index, keep fees and expenses as low as possible, stay diversified (which means holding more than just bonds and stocks), reinvest dividends, avoid trading and don't try to outsmart the markets.

Ad Orientem wrote: Those are some good observations. But I like Harry Browne's rules more.

Definitely. 

Ad Orientem wrote: Those are some good observations. But I like Harry Browne's rules more. Really the best advice you can give someone of a very general nature is to index, keep fees and expenses as low as possible, stay diversified (which means holding more than just bonds and stocks), reinvest dividends, avoid trading and don't try to outsmart the markets.

Amazing to think back about the "fiscal cliff"...they should schedule those more often.

AdamA wrote: 5. There is virtually no correlation between what the economy is doing and stock market returns. And so on...

I was thinking  about that given the current market/economy.  But why?  is this because the market is all based on delusions? (as some I know would have it)?

Benko wrote:

AdamA wrote: 5. There is virtually no correlation between what the economy is doing and stock market returns. And so on...

I was thinking  about that given the current market/economy.  But why?  is this because the market is all based on delusions? (as some I know would have it)?

It's because the Fed's money printing is distorting the economy.

Got it, thanks.

Benko wrote: I was thinking  about that given the current market/economy.  But why?  is this because the market is all based on delusions? (as some I know would have it)?

It's because, at times, there is no effective transmission mechanism between monetary policy and the real economy aka "pushing on a string".  The financial markets, which are always directly effected by monetary policy, are all secondary after the bagholders buy IPO's or debt offerings, so financial markets don't serve any further role in allocating society's scarce resources.  And the "wealth effect" on the real economy is minuscle at best.  Needless to say, this delusion is widespread, but then thats good right?  False perceptions play in their own sandbox and don't effect the real economy until some Master of the Universe blows up his bank speculating in derivatives with depositors money and demands a Congressional bailout (when they really should be tarred and feathered, imprisoned or worse).