All the gurus say it. Buffett, Lynch, Pabrai. Invest in the stock market to become rich. But looking at my portfolio recently, I sure don't feel rich, and, frankly, the market's not helping.
Look at Citigroup (NYSE: C) -- down 40% in just three months because of investments in mortgage-related securities. Then there's bebe stores (Nasdaq: BEBE), down more than 30% on weakness in the retail sector.
One of the few bright spots in the market has been Yamana Gold (NYSE: AUY). But even that fell 18% in one week in November, when it missed third-quarter earnings estimates. Heck, last August, it fell almost 20% along with everything else, it seems, and it really isn't tied into the housing or subprime woes at all.
What's an investor to do?
A brief anatomy lesson
My favorite quote, among the thousands that deal with investing, is this one: "When in danger or in doubt, run in circles, scream and shout."
Wait, wait. Wrong one.
Here we go: "The key to good investing is not the brain, it's having the stomach."
While that might not be a word-for-word quote of Peter Lynch, it certainly is a paraphrase of what he taught. And he's not the only one who's expressed that sentiment either. Remember this one?
"Be fearful when others are greedy and greedy when others are fearful." Warren Buffett has lots of great advice, but that one just begs to be framed.
There's always something to worry about
What Peter Lynch meant is that worries always abound. The successful investor knows to mostly ignore them.
Right now, the big bugaboo is the credit markets and housing turmoil. Two years ago, it was avian flu. At the beginning of the millennium, the dot-com crash.
Before that, we feared that Americans couldn't keep up with the Japanese. Remember when "they" bought Rockefeller Center?
The 1970s had inflation and an oil crisis. The 1950s had fears of nuclear war.
Do you see a pattern here?
Although the market always has something to worry about, the worry du jour has never meant the end of the investing world.
Instead, strong businesses survive and keep growing -- taking the market along for the ride.
Less worry, more money
Now, not every company survives, and people do lose money investing. That's why you'll do well to focus on strong operators and superior management teams.
Why did Amazon.com (Nasdaq: AMZN) survive the dot-com crash? It had a viable business model and the right people in place to make it great.
Although Asian manufacturers did end up gaining an edge in many markets, American entrepreneurs responded with businesses such as NVIDIA (Nasdaq: NVDA) -- recently named Forbes' Company of the Year -- that have kept our capital markets strong.
Johnson & Johnson (NYSE: JNJ) has been a company that's been affected by every one of these worries -- and lived to tell the tale. It's a blue-chip brand that's always worth considering for purchase when the market dips.
Consider: J&J has returned more than 16% annually over the past two decades!
Something for everyone
Which kind of investor are you: A Chicken Little or one who will take advantage of market panic to profit?
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This article was first published Dec. 7, 2007. It has been updated.
Jim Mueller hasn't lost his head (last time he checked), but he has been hit by a low flying cloud once or twice. He owns shares of Johnson & Johnson. Amazon, bebe, and NVIDIA are Stock Advisor selections. J&J is an Income Investor selection. The Fool's disclosure policy is always calm, cool, and collected.
