The Week in Review -- July 2, 1999

The Markets

  6/25 Close 7/2 Close Change %Change
DJIA 10,554.15 11,139.24 585.09 5.54
S&P 500 1,315.31 1,391.22 75.91 5.77
Nasdaq 2,552.65 2,741.02 188.37 7.38

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Close Enough for Rock and Roll
by Jerry Thomas (tmfcheeze@aol.com)

Greetings, Fools.

Investing is a lot like Rock and Roll. It's as easy or as complicated as you want to make it. The first day you pick up a guitar you can learn a few chords and be playing "Louie, Louie" passably well before it gets dark. That might be as far as you ever want to go with it. Or, you can devote years of study to your instrument, and maybe one day give Eddie Van Halen a run for his money. It's up to you how far you go with it. Either way, the effort can be quite rewarding.

Investing works the same way. You can learn all you'll ever need to know about Index Funds in an afternoon, and enjoy a lifetime of successful investing with no further study. On the other hand, many people find that the subject has such a fascination that they throw themselves into it. You need look no further than our Foolish Workshop message board to find people who have been captured by this world.

There are endless pleasures to be found in studying stock screens, business models, valuation techniques, portfolio management approaches, and so on. It's a study that brings rewards far beyond any financial gain you might reap from your investments. Even better, with the careful application of patience, prudence, and discipline, you can outperform the investment professionals of Wall Street, most of whom struggle their whole careers without achieving a measure of success that can even be called mediocre.

Curiously enough, there are those who would find the words I have just written appalling. There is a persistent strain of criticism of The Motley Fool that says we are being irresponsible when we tell people that investing is easy. Sure, they say, the world is rosy now. Everyone makes money in a bull market, but no bull market lasts forever. Eventually there will be a downturn, and when it comes people will be hurt. Telling people they can do it themselves, and easily, only sets them up for a fall.

First of all, it is never explained to me why such a series of market reversals would be any less painful to me if they occurred while my assets were under professional management rather than my own. Presumably, the hypothetical professional in charge of my money would somehow have had the foresight and the ingenuity to outdo his brothers in the investment trade. The record of that industry, however, suggests otherwise. Still, such objections really miss the point. The true long-term investor expects that there will be reversals of fortune along the way, some of them quite severe. While they may test our patience, the day-to-day, month-to-month, and even the year-to-year meanderings of the markets really mean very little from such a perspective. In fact, we had a small demonstration of this principle just this past week.

Monday and Tuesday, the markets were in a state that the media likes to call "skittish." (I must have heard the word "skittish" fifty times over the past five days.) The reason: an expected interest rate hike from Alan Greenspan and his friends on the Federal Open Market Committee. Would he raise rates a quarter of a point? Or a half? And would he signal further rate increases in the weeks to come? The uncertainty made the markets nervous, erratic -- perhaps even... skittish. Then on Wednesday the Fed produced its modest quarter-point rate move while announcing -- in reassuring, if oxymoronic, bureaucrat-ese -- a bias toward neutrality. The markets soared.

Meanwhile, Fools were yawning. Two days before the Fed revealed its plans, Fool Matt Richey (TMF Verve) was reminding us that the current anxiety meant next to nothing to those who invest Foolishly. "For the long-term investor, these interest rate worries are irrelevant," said Matt in Monday's Rule Maker Report. "Even with all of the inflation and deflation, booms and busts, and war and peace of the last nearly 200 years, stock investors have doubled their real purchasing power every 10 years." Rick Munarriz (TMF Edible) echoed that sentiment in Tuesday's Fool Plate Special, still a full day before the market shrugged off its concerns to begin its rally toward 11,000 on the Dow. As it happens, the anxiety displayed in the markets proved to be little more than an amusing and pointless sideshow. If you're a long-term investor, you'll get to watch a lot of these in the years to come.

And so, I am nothing but perplexed at those who insist that investing is a difficult pursuit. I suspect that those who argue otherwise are doing it wrong, trying to time the markets, delving into arcane and useless technical analysis, and guessing in advance the movements of prices. You can make an easy task astonishingly difficult simply by choosing the wrong tool. Try mowing the lawn with an egg beater some time if you need an illustration of that concept. Some people will waste whole lifetimes with their Elliott Waves and their Pre-Harmonic Oscillators trying to do things that are simply impossible. As for me, I expect to see the Dow Jones Industrial Average at 40,000 before my life is finished, and that's easy enough a target for me to shoot for. I also expect to see a few 30% market declines before it gets there, maybe worse. Such is life.

This weekend we celebrate the Fourth of July. There will be no trading in the markets and therefore no new Fool content on Monday. Spend that extra time with our Fourth of July Special, which will help you discover some of our Fool features that you might have overlooked. You might also reward yourself by reading Wednesday's Fool on the Hill commentary from Louis Corrigan (TMF Seymor), which recounts the success of Coca-Cola's legendary chairman Roberto Goizueta. Then you can check out the posts that were the winning entries in our recent Planet Hollywood Contest. In these you'll find the pleasures I refer to, the rewards of a life of investing.

Until next week,
Fool on!

Cheeze

Talk about Notes from a Fool on the Cheeze-O-Rama message board!


 




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