Volatility. The times are out of joint, with nearly certain uncertainty stalking people's thoughts. People tell me of sleeplessness unprecedented since 9/11, of aimless worry keeping up those who have slept well throughout their lives.
Is their concern hurricanes, floods, global climate change? The nation's three wars, or its paralyzing political deadlock? The Arab awakening, new cheap ways of creating nuclear weapons, polluted drinking water, rising adolescent drug use?
No, they tell me, they can't sleep because of the stock market. Many of them are not even in it.
Sleepless Over Stocks
Security and comfort are difficult to find these days, and the stock market often moves "contrary to fact." What happens when an earthquake strikes the northeast, felling gargoyles from the National Cathedral in Washington and cracking the Washington Monument? The Dow goes up more than 300 hundred points. When Standard and Poor's, citing attempts by members of Congress to cause government default, cuts the AAA rating of government bonds, what happens next? Government bond yields decline to their lowest level in decades.
It's much as the great economist and remarkable investor John Maynard Keynes said in the 1930s: "The markets can remain irrational far longer than you or I can remain solvent."
Time to Hide?
Listening to famous investment advisers might lead you to scurry for the hills or bid on time shares for alpine huts. Swiss mavens Felix Zulauf and Marc Faber (the latter domiciled in Hong Kong) write of the future sharp decline of Western economies, recommending people buy gold before North American and European governments massively debase their debts and currencies. No less an expert that Bill Gross, head of the giant firm Pimco, touts as one of his better investments Canadian government bonds -- paying 2.5 percent. Many hedge funds, supposedly the smartest money and just the folks to prosper through volatility, are now losing their shirts. Barrons reports that supersuccessful John Paulson is down at least 31 percent for the year. Most hedgies are not beating the market, threatening their business model -- why pay people 2 percent a year and 20 percent of profits when you're better off holding cash in the bank?
What's a sane person to do?
The White Paper Solution
- Take out a white piece of paper.
- Draw a vertical line down the middle.
- On the left side, write down your reasons for staying in the stock market.
- On the right side, write down your reasons for not keeping money in the stock market.
Your review will necessarily be complicated by your outlook on life, your family situation, your age, your job and presumed job security, whether you are investing for the long term or not interested in investment at all. But writing down what you're thinking about and what worries you can do a great deal to clarify where you want to go.
And if you do stay in, there's always the "long view."
The Big Picture
Economies do go up and down, and legendary investor John Templeton was not the only person to declare he made the most money buying when there was "blood in the streets." Uncertainty and what sometimes looks like political and economic insanity do promote opportunity. Some make the most money when everyone else is too scared to act.
But most of us do not possess good crystal balls. For a lot of us, our crystal is permanently cracked. Small investors in particular are famous for getting in when things are about to crash and getting out just when events turn up. There are even investment funds that track such behavior and trade against it.
But for much of the population it's too difficult to figure out if deflation will be replaced by inflation or if the yuan will inevitably rise. For those who believe economies will still exist there are a variety of "Lazy Man Portfolios" one can access over the net.
Lazy Man portfolios allow you to select your presumed risk and still not go crazy. You can put your money in a few baskets of index funds whose low fund costs save much cash over time.
You then pick a period -- every three months, six months, twelve months -- to review and change this portfolio. If some things went up, you can take the profits and put it into areas that did not do so well. Statistically that seems to help things along.
And without putting money in a mattress, whiskey futures or Libyan bonds, you might even sleep a little better.
If You Can't Sleep
If you still can't sleep, create a sleep ritual for yourself. An hour before sleep, turn down your bed. Floss and brush your teeth. Take the time time and pick out your clothes for the next day.
Then, with the lights low, find a comfortable chair to curl up in. Many books can aid sleep -- you can always pick a book you should have read in high school but didn't. Some find Pope's eighteenth-century masterpiece The Rape of the Lock more potent than any sleeping pill.
But for those financially concerned, Lord Keynes may provide an answer. Find a copy of his great 1936 tome, General Theory of Employment, Interest, and Money and spread it out on your lap.
Folks tell me the book lets them sleep rather soundly.