| Sarasota Herald-Tribune
Do you have whiplash yet? The political uncertainty surrounding the economy combined with Wall Street’s rising volatility and the nosebleed levels of some market sectors, mostly technology, is sapping investor confidence.
Therefore, it is not uncommon for investors to believe that the real driver of share prices is not earnings, but fear, hope and greed … with emphasis on fear. I disagree.
Yes, there will always be speculators whose prey are those paralyzed by short-term market instability. An emotional trauma resulting from the fear that some unanticipated event will lead them towards the Gates of Hell on Wall Street.
Meanwhile, speculators think of Wall Street as nothing more than a sophisticated game of chance, with an objective of trying to gain an edge. One step up in the food chain is the continual prattle by the financial media hawking the attributes of the latest hot stock.
Yes, you might successfully find the next Amazon or Google. However, you are far from alone in undertaking that endeavor. Countless others are focused on the same line of inquiry, thereby dramatically reducing your probability of success.
Fortunately, your investment future is not dependent on, nor should it encompass, any of the above. Investment success is most often the result of patience aligned with a reasonable dividend-based investment strategy designed to stay in place for two or more years.
Delve into the innards of a successful investor’s thinking and you will find they undertake the necessary research required to make investment decisions that have a high probability of success.
Vision and patience are two sides of the same coin. If you had the acumen to see the value in a company, then have the endurance and courage to ride through short-term market aberrations and vindicate your judgement.
A rule of thumb is that a corporation needs a minimum of 12 to 24 months to demonstrate whether it can deliver promised performance. Therefore, you need to allocate the same length of time for that company’s shares to appreciate.
Continual investment concerns are usually indicative of insufficient knowledge. Fundamental financial analysis can go a long way towards increasing both your returns and your confidence.
However, please do not ask for the impossible. Everyone wants monetary gains with little or no risk. Accomplishing such a goal is a rare event. And if it occurs, the credit belongs to Lady Luck.
Your primary investment objective must always be to achieve returns that exceed what you will lose through inflation and taxes. Do not continually try to outperform the market. Greed can be an overwhelming and uncontrollable force.
Do not allow yourself to be hypnotized by the various forms of herd mentality, often endemic on Wall Street. Distance yourself from all the noise of what might be, could be, or should be. Those who succumb to the Sirens of negative rhetoric will miss great buying opportunities.
Yes, there are times when the urge to rush for the exits may become irresistible. The icy panic that grips you at the thought of your profits evaporating can be overwhelming. Investing is not always easy on the psyche.
Holding funds means you have two choices: you can consume, or you can invest. Investing trades today’s purchasing power for greater future consumption. And your investment portfolio is the store house for this rising purchasing power.
However, you must first establish a road map of where you are today and where you want to be at some point in the future. For some the long-term goal might be retirement. For others it might be to ensure that you have adequate funds for the last stages of life, while still being able to leave behind assets for family or charity. No, Uncle Sam is not a charity.
Keep in mind that your goal should a return higher than a 10-year Treasury, plus the current rate of inflation. You might also want to try and obtain a 3-5% risk premium for investing in equities. Given the unusually low levels of interest rates and inflation, an additional couple of percentage points might be attainable.
Lauren Rudd is a financial advisor with Raymond James & Associates,1950 Ringling Blvd., #401, Sarasota, FL 34236. You can contact him at 941-706-3449. Any opinions are those of the author and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected.