Research indicates that investment performance is largely determined by asset class allocation; that is, your rate of return will be greatly affected by how you diversify your investments among cash, fixed income, equities, real estate, and newer classes such as inflation linked, absolute returns and private equity. However, last year, all asset classes with the exception of government bonds got smashed. So much for research and the value of diversification!
What about timing? Being in the right place at the right time, or being in the wrong place at the wrong time can surely affect the performance of your investments. Keep in mind that with investing, as with comedy, timing is everything. So, is this the right time to start investing?
I think this is a good time to start investing again but slowly and cautiously. Keep in mind that stock prices dropped about 45% in the last twelve months and this makes assets cheap. You can expect foreigners to start buying US companies, especially the Japanese and the Chinese, who have tons of our money stashed away. Don’t forget also that we are part of a capitalist system. The essential belief of capitalism is that self interest leads to profitable behavior. As such, you can feel strongly that as I write this letter to you there are millions of people in the U.S. who are working hard to make a profit. Eventually, the sum of all our individual efforts will result in an economy that will produce more of what the market demands at a lower cost. This activity will produce increased profits and eventually raise the standard of living of the population of this great nation. Before all this happens, you can expect the stock market to increase because it usually reacts ahead of time; it is a rather reliable predictor of future economic activity.
What evidence do I have to support my claim that millions of individuals are working hard to become more productive and increase profits? For one, I am writing this letter not to support charity, but in the hopes of generating some profits for my business! Here are some other examples: Why are YOU reading this? I assume you are looking for a few ideas so that you, too, can make money! Citigroup is shrinking itself, on the belief that being smaller will make them more profitable. Bank of America—shame on them—is again begging for a bailout from the government so they can finish the buyout of Merrill Lynch. The taxpayer will get stuck with billions of dollars in bad mortgages made by Merrill Lynch, while BofA attempts to increase their profits.
Nortel announced bankruptcy last week. This is a technique to reduce or eliminate debt, so they can become profitable again. Yahoo hired a new president last week, so she can lead them to greater profitability. Microsoft is reportedly considering layoffs in order to make more money. Pfizer just announced a massive purchase in the hopes of becoming more lucrative. In January alone, companies have announced more 211,500 HYPERLINK “http://money.cnn.com/news/specials/storysupplement/joblosses/2008/” job cuts.
Eventually, the prudent investor will outperform the chicken investor. This is the time to start increasing your confidence level after, I am sure, it was battered last year. Don’t shy away now from putting together a sound long-term investment program. If you want to learn how, call me to set up an appointment or come to my next seminar entitled “How to Build a Portfolio: Reviewing Investment Fundamentals”. The seminar will take place on:
DATE: Saturday, January 31, 2008
TIME: 9:30 am – noon
PLACE: 45 Plaza Square, Orange, CA 92866. The seminar room is located by the alley next to Starbucks Coffee, across the traffic circle or the Plaza, in Old Town.
REFRESHMENTS: Coffee and muffins will be served
If you would like to attend the seminar, please confirm your attendance via email to
HYPERLINK “mailto:professor@ulivi.com” professor@ulivi.com or by leaving a phone message at (714) 771-6000. Your friends and
family are welcome.
Warm regards,
Professor Rick Ulivi, Ph.D.
professor@ulivi.com
Website: www.ulivi.com