Starting over, Part 3

HT & Thx to Nike

Random notes for beginning investors:

1. In a recession like this one, every asset price falls. In what is now called The Great Recession, prices in all asset classes declined. Yep, gold, too. Real estate was the primary ’cause’ of the asset bubble and so was the hardest hit.

Depending on the part of the country (world, too, but timing was slightly different), home prices declined 30% to 50%. Hardest hit were California, Nevada, Arizona and Florida. Funny loans – NoDoc loans, also known as liar loans – lender didn’t require documentation of income, and Ninja – no income, no job, loans were popular.

Even in quiet old Oregon, home prices plunged. This was an outcome of government insistence on lending to anyone with a pulse, plus “homeowners” using their homes as ATMs. As home prices appreciated in the final five years of the bubble, people were borrowing on the equity (increase in value + down payment + plus monthly payments to date). Then they spent it on vacations, huge cars and other products with prices that DECLINE or disappear.

Then, Wolves on Wall Street, began to play. They combined those toxic loans into packages of great complexity. Many buyers, especially banks (!) admitted they did not understand the workings of those bad boys. There are lots of books out now by financial people explaining how it happened and selecting villains of their choice. IFO thinks everybody playing the game, including “homebuyers” were the villains.

The home building industry stopped. Jobs disappeared. G-vt jumped in to save … the Banks! Then the Auto Industry! Then the unions! Everybody else – not so much.

Though many claim the recession is over, there is still wreckage lying around all over the country – bankrupt cities, low incomes, still billions – or is it trillions – in toxic home loans, fewer banks. Read Dr. Housing Bubble, link in the IFO blog roll.

2. Don’t try to time the market, but be keenly aware of ups and downs, and peaks and troughs.

Yes, the market has recovered beautifully. This helped banks and pension funds and the stock investors, like IFO, who asked, “Okay, if I sell, where do I put the money?” IFO couldn’t answer, so she spent the recession nervously watching her entire portfolio shrink, with many shares at prices lower than where she bought them. None of them went out of business and all continued to pay dividends.

Now we saw new highs all year. Well, should you buy stock now? Don’t try to time the market, but it seems awfully high right now. Advice: get familiar with the entire DJIA. When you pull up a price chart, get one that goes back decades, not days or weeks. Then follow IFO’s advice about research, etc., etc. before you decide what to do.

3. Other assets: Gold, oil, other commodities. Only buy what you know.

Did your Dad and grandpa work in the Oil Patch? You should be ahead of the game there. It’s a wild and woolly asset class, but one with many advantages, not the least of which is the wonderful entrepreneurial people who populate it.

Same for gold. Don’t fall for the fear appeals – and do know that gold is NOT counter-cyclical to other assets. That is, gold goes down when everything else is going down, except under certain special circumstances. If you are young, it’s not a bad idea. Just be aware of the entire history of gold.

That’s it. These past three posts give you what you need to get started. Final investment advice: who is the only person has your best interests at heart? You. Just you. Not trusted advisors. Not experts. Not the elevator operator. They can be sources of information, but don’t take their advice. Just trust yourself.


About InvestingforOne

I've been investing in various assets by myself using a discount broker for many years. Over that time, I've developed some theories that others might find useful. Plus, there is more to investing than money. Time, talent, work, friends, family all go into developing a good and satisfactory strategy.
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