mathjax

Friday, February 9, 2018

Investment Rules to avoid your Retirement Apocalypse.

I predicted the #StockMarket would crash in 2016 when President Clinton would have been elected to a third #Obama term. Instead there was so much sidelined money it came rushing back in on hope in the #TrumpBump. When the #US Federal government agreed to add hundreds of billions onto a debt they will never repay and the prospect of higher interest rates. The fundamentals are now worse. It's 1929 all over again.


Whatever that hopefulness was, it wasn't on firm footing and it was going to take one small disturbance to crash the market because the fundamentals are all wrong now: stocks are too over-valued and companies packed on debt to give dividends or buyback shares, that debt locked in at low interest rates they won't be able to sustain in the future when interest rates rise.  The entire #market was operating on cracking ice and it's now burst open.

I never wavered from the assessment. It was a matter of if not when.

As we gaze upon the carnage of the #DowJones -1032 and the halcyon of a fresh bear market, here are my rules for investing:

  1. Everyone is lying to you: once you accept that the economic data is not like physical data, it is skewed and biased to the advantage of the presenter, accept that you must rationalize how likely the promises are of coming true are.
  2.  All business reporters are lazy; you can't trust them to hold corporate sociopaths accountable. At the worst times like now, they can't bring themselves to admit they were wrong and instead rationalize why they didn't ask hard questions earlier. They are no different than political reporters, they get in bed with powerful interests whether they realize it or not. They become cheerleaders over time whether they realize it or not.
  3. Financial analysts fear being sued for recommending a sell, so they will advise a hold when they really mean sell. You can't trust them either. Look at all these so-called experts that were raving about investments the day before -1032 daily losses. Why didn't they predict it and become the lone disruptive hero? They can't see their own biases.
  4. If your investment makes a profit, don't be shy about taking it. A win is a win. Later, if that equity goes higher don't detract from why you sold at the time. You are always safer making a little than risking it for nothing.
  5. The underlying value of any equity is a fraction of the market value. It is a fantasy that stocks outstanding times by price is a fair estimate. It has never borne out in reality, ever. Instead, the real value is how much it would be worth if you had to liquidate 15% of the total immediately. If one had to sell at a loss, that value times the outstanding shares is more realistic, or in other words a fraction of the stated value. 
  6. All equities are gambling. You are giving your money to others who are often no smarter or dedicated than you are that "hope" to return a profit. Don't delude yourself they are superhuman.
  7. All equities are risky. You can't let current market sentiment persuade you that a price drop of 50% is inconceivable. It's never inconceivable.
  8. Bankers take their profit first. They walk away from the asset and you own it. All risk is yours. Their job is to get you to give them your money- what happens next is on you. Don't expect anything otherwise.
  9. Stock market workers can liquidate their assets faster than you can so plan downside conditional trades when you can't focus on the markets. 
  10. Understand both what the market fundamental are and the current investor sentiment before you invest in an equity. You can trade on either.
  11. Traders are motivated by greed and fear. Exploit both.
  12. Predict where the average, normal person will be in the future and get ahead of that. Keeping ahead of the swings is how you avoid disaster.
  13. If you can't babysit a risky investment, why would you invest?
  14. Take your time. Believe in yourself. Be patient when you invest.