All of the gurus say it, from Buffett to Lynch to 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 Merrill Lynch (NYSE: MER) -- down 31% since October because of investments in mortgage-related securities. Then there's Home Depot, which is down 30% since last summer on weakness in the retail sector and homebuying.
One of the few bright spots in the market is Vale (NYSE: RIO), formerly known as Companhia Vale do Rio Doce. But even that stock fell 17% in just more than a week last month, thanks to a negative court ruling and uncertainty about future demand of iron ore. Heck, last August, it fell more than 20% -- along with everything else, it seems. And Vale 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
Peter Lynch meant that worries always abound. The successful investor knows to mostly ignore them.
Right now, the big bugaboo is the credit-market turmoil and housing. Two years ago, it was avian flu. At the beginning of the millennium, it was 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 -- and they take 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 Netflix (Nasdaq: NFLX) 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 Intel (Nasdaq: INTC), founded in 1968, that have kept our capital markets strong.
Procter & Gamble (NYSE: PG) has 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: P&G 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?
If you'd like to be the latter instead of the former, check out our Motley Fool Stock Advisor newsletter. Fool co-founders David and Tom Gardner practice a patient, methodical investment style that has led them to beat the S&P 500 index by 42 points over the last five and a half years. They want to teach you how to do the same thing.
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