All 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 Bank of America (NYSE: BAC) -- down nearly 30% since October because of investments in mortgage-related securities. Then there's Bed Bath & Beyond (Nasdaq: BBBY), down more than 30% since last summer on weakness in the retail sector and home buying.
One of the few bright spots in the market is miner BHP Billiton (NYSE: BHP). But even that fell 15% in a week last November, thanks to a failed takeover of Rio Tinto, and worries that base-metal mining was peaking. Heck, last August, BHP fell more than 18%, along with everything else, it seems. And BHP Billiton 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. 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 turmoil in housing and the credit markets. 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 -- 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 Blue Nile (Nasdaq: NILE), founded in 1999, survive the dot-com crash? It had a viable business model and the right people in place to make it great. While many dot-bombs disappeared forever, Blue Nile went public not long after the bubble burst.
Although Asian manufacturers did end up gaining an edge in many markets, American entrepreneurs responded with businesses such as Cisco (Nasdaq: CSCO), founded in 1984, that have kept our capital markets strong.
Northrop Grumman (NYSE: NOC) 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: Northrop Grumman has returned more than 15% 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 on 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 does not own shares of any company mentioned. The Motley Fool owns shares of Bed Bath & Beyond, a recommendation of both Inside Value and Stock Advisor. Bank of America is an Income Investor pick. Blue Nile is a Rule Breakers selection. The Fool's disclosure policy is always calm, cool, and collected.
