Posts Tagged ‘Stock Market’

Happiness Is a Reliable Income Source

Sunday, June 6th, 2010

The content of human happiness is a subject for never-ending speculation and wonder. One aspect of this picture seems to have clarified, however. Retirees consistently say that they are happier when they have a reliable source of income than when they don’t.
Unfortunately, retirement is, by definition, that time of life when earned income ceases. How, then, should a prospective retiree find a reliable income source?
What is a Reliable Source of Income, Anyway?
Surveys of retirees are valuable but potentially misleading. Reactions to the phrase “reliable source of income” will vary not only because people have different needs for security and growth, [...]

To Bail or Not to Bail

Tuesday, June 1st, 2010

That is the question. Whether ‘tis nobler in the mind to endure the slings and arrows of outrageous equity markets, or to take rise against a sea of portfolio fluctuations – and, by opposing, end them.
Shakespeare’s portfolio decisions are not recorded. Nonetheless, his protagonist in Hamlet displays a psychology remarkably like that of non-professional equity investors. They can’t make up their mind, either. On the one hand, they can still feel the terrifying sensation of the equity downdraft in late 2008 and early 2009. On the other hand, they are obsessed with “getting back” what they lost – and how [...]

The Best Possible Result, or the Best Result Possible?

Sunday, April 18th, 2010

The British bridge expert, S. J. Simon, drew a distinction that is just as valuable to investors as it is to bridge players. Simon criticized players who sought to achieve the “best possible result” on every hand. This was too unrealistic, he contended; they should strive instead for the “best result possible” under the circumstances. Now is the season for reviewing last year’s market results and looking ahead to this year. That makes it the ideal time to recall Simon’s dictum.
 Simon’s “best possible result” (BPR) corresponds to what economists would call a global optimum. It is analogous to the highest [...]

Why Do Funds Make Stocks Safer, But Bonds Riskier?

Tuesday, March 16th, 2010

Suppose you had $100,000 to invest in the stock market. How would you go about it?
Stock Investing: Diversification is the Name of the Game
For decades, the orthodox advice to average investors has been to put the money in one or more mutual funds. And sound advice it is, too. Putting the money in the stock of any one company – no matter how sound, no matter how “hot,” no matter how currently profitable – would be the wrong thing to do. Any information affecting the company’s future stock price is already reflected in its price, which means that changes in [...]

The Trade Deficit is Falling. Should We Care?

Wednesday, March 3rd, 2010

A few weeks ago, The Wall Street Journal announced that the U.S. trade deficit had fallen for the second consecutive month. Should we care about that datum? The trade deficit is one of several economic indices that receive stylized media treatment: They are solemnly reported, their accuracy is taken for granted and their importance is assumed. In the case of the trade deficit, none of this is appropriate.
 What is the Trade Deficit?
The term “trade deficit” relates to a line item on the U.S.’s balance of international payments. The balance of payments is a double-entry accounting summary of aggregate economic transactions [...]

The Season for Buying – and Selling

Tuesday, February 23rd, 2010

To everything, there is a season – and a time for every purchase under heaven. No, that‘s not a misprint – just an economist’s reworking of the Biblical passage.
Every recession brings with it a curious phenomenon. Non-professional investors exit the stock market like a herd of lemmings with an appointment at the edge of the cliff. Eventually, the same people stampede into the stock market during the expansion phase of the cycle. Typically, net stock-market inflows peak at or around the apex of the cycle.
This is no way to run a railroad.
The general idea behind portfolio investment is to make [...]