Investment Advice

November/27/2008 2:00AM
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Regardless of what you pay for investment advice, it’s all pretty consistent. Be it a wealth manager, a money manager, an investment counselor, or just the guy next door, they all sing from the same hymnal. Here’s the universal advice, “diversify by risk tolerance,  adjust your portfolio, but don’t be a market timer”. If everyone followed their advice, there would be few shares being sold. Since there are few buyers and lots of sellers, the market keeps dropping. So every day either lots of portfolios are being adjusted, or more investors are jumping ship and going off the reservation. 

I understand how hard it is to time a market. If the market goes up a little, down a little, and you keep going in and out, you will lose. I understand that if you keep buying in as the market is going down, you cost average. 

Warren Buffet says buy when others are selling. But, he doesn’t say he gets special deals. He buys a block of stock with a dividend guarantee of 10% and has little downside risk.

If everyone rides it down, everyone has less wealth and less ability to buy. This should keep prices down and leverage the purchasing power for those who didn’t ride it down. If the bear market goes much longer, the Dow will be down 50%. At 10% per year, it will take almost 7 years to get back to break even.That’s a long time.

If all give the same advice aren’t some likely to be wrong. It’s like consensus science about global warming. Using the typical curve used in the classroom, you get 15% who are really smart and 15% who flunk. If the entire class gives the same answers, you either have a class that’s really smart or the entire class flunks. 

The longer this goes and the greater the fear mounts, the more investors will want to scrap the advice and decide to salvage some assets. There will be a tipping point one way or the other. Investment advisers always say there is a lot of cash on the sidelines. Some day it will pour back into the market, and we will be in a raging bull market. What I don’t understand is the idea that money went to the sidelines when everyone is telling their clients to stay in the market. 

I listen to the advice I pay for, but I don’t always follow that advice. By experience, as a business executive, I have learned to read the tea leaves. For 20 years I felt GM was poorly managed and eventually they would go away. For 4 years I have felt the United States was poorly managed and it could go away. It’s getting worse, not better.

Bad strategies, poor execution, and no accountability usually spells bad results. Big does not insure success. GM can’t afford to pay 10,000-15,000 people( the number changes every time I see it published) full wages and not work. GM can’t afford their version of social security. GM can’t support 8,000 dealer when Toyota has 1,500 selling the same number of cars. GM can’t support 8 separate brands. GM can’t pay $30 an hour more than U.S. competition. GM’s central bureaucratic management doesn’t work.

GM needs change and has needed it for 20 years. USA needs change and has needed it for many years. Neither are going to get the change they need.

Someday I may be an investor in whatever rises from the ashes of GM. Someday I may be an investor in USA, but not in the next few months or years. 

I’ll watch while you tweak your portfolios. Based on what has happened to GM stock, you are tweaking them out of your asset base.

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