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Friday Feature: How about investing long-term?

January 31, 2020

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Friday Feature: How about investing long-term?

I get tons of emails with all kinds of questions about the markets. Like the one I have addressed in last week’s stock report: is it the top of the markets? I’ve answered that as best as I could by showing two simple examples from the past.

There is another question that I get from followers a lot: How about investing long-term? Now this one is pretty tricky to answer in my opinion. Let’s start with the market indexes overview.

We have markets’ nearly all-time highs trying to correct in the past few days and we have been going straight up since 2009. But let me ask you a question: how many stocks in the Dow Jones index are still in the index since 2009?

Well, I will be honest with you and will tell you that I don’t know, but you can go ahead and Google it. I can guarantee you that those holdings are not the same since the Dow bottoming in 2009. I assure you those are not all the same stocks.

DOW 30, S&P 500, Nasdaq, Russell 2000 are marketing tools for financial markets. Their job is to look good for the retail investor. So if there’s a stock that underperforms an index or drags it down it will be replaced with over-performing stock. So with that being said, the adage “markets are designed to go up” sounds like a bad joke doesn’t it?

Friday Feature: How about investing long-term?

With this quick overview of market indexes, I will start answering the question that traders from around the world keep asking me over and over again: What to invest in the long-term? Tech stocks? Is it a great idea long-term?

Remember Nokia and Blackberry? Phone makers. I used to have a Nokia 3310. An unbreakable phone and it seemed like this company would dominate the world at a certain point. And where is it now? I don’t know, to be honest. The same thing happened with the Blackberry brand. Remember this one?

There are examples like these in each and every sector. Stocks that did not catch up with reality or couldn’t compete with the rest of the market.

Look at mismanaged companies like GE, what kind of a haircut would you take if you got in, let’s say in 2017, to be more dramatic?

It happens every single day in markets. Companies become penny stocks or “go under”, new companies that are being created. It is the stock market’s “circle of life”.

Looking into the future: what will happen to insurance stocks once every single car is self-driving? We might have no accidents on the roads. What will they do to stay afloat? Are there planning for that?

And what will happen to oil prices if every car, truck, train, airplane, and ship is electric? No one knows. 

With that kind of perspective, the long-term also looks risky, doesn’t it?

Just to throw it in here, does anyone know where the majority of profits come from Buffett’s Berkshire Hathaway? Selling premiums against his positions.

With that last sentence, it seems like I have answered the original question.

Buy and hold times are over! Whether you like it or not. If you want your money to grow you need to stay on top of it and manage it. If you don’t know how to do it, it is time to learn because if you don’t, the educated guys will come for it.

Friday Feature: How about investing long-term?

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2 Replies to “Friday Feature: How about investing long-term?”

  1. Avatar wrkrel says:

    Very forceful argument!

  2. JimGuanzon JimGuanzon says:

    Game Over! Great stuff. Thanks Slawek.

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