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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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We cant go wrong investing in technology its a whole new economy(SEC) seems daily to find yet another company that inflated its earnings through aggressive accounting, it can be hard to have confidence in the future of American business. If history, though, is our guide, we know that business is cyclical. Even after rough troughs, capitalism presses on. And as for bookkeeping, ultimately the scrutiny that accounting scandals engender helps make the public markets more credible, and in turn stronger. Indeed, sometimes the problem is not that investors are skeptical of our nations economic future, but that they are not skeptical enough. During the hypergrowth years of 1998 and 1999, the seductive siren song that blinded so many people to some basic investment truths went like this: Technology is the world of the future, and it will continue to change our lives forever! We cant go wrong investing in technology its a whole new economy! Of course, its now clear that while technology will continue to affect our lives, not every tech stock has a future worth investing in. But if the engine of our industrial, technical, and informational culture keeps moving forward, and you believe that it will continue to do so, then you should commit to invest in American business. A Commitment to Continued Learning Investing is an endeavor that benefits from continued learning. Some people embrace the topic of investing and strive to master the challenges of analyzing company fundamentals, deciphering charts, and screening stocks. For others, investing is not that kind of passion. They want minimal intellectual involvement. But either way, investing takes a certain amount of understanding of the behavior of the markets and the traders and investors who operate in them daily. Investing is not like getting your drivers licenseone test and youre done. Youve got to gain a baseline understanding and build on it through reading, listening, and exchanging ideas with the many others who are trying to make sense of the markets unpredictability. I have been in this business for 35 years. I still find myself constantly challenged, and challenging myself, with new studies, perspectives, and points of view on investing. My commitment to learning about investing has become a regular and stimulating part of my life. To the degree appropriate, it should be the same in yours. A Commitment to Yourself and Your Family I dont care whether you are rich or not so rich, whether youve got a big job or no job, whether youve made a lot of money mistakes or a lot of good money moves. Whatever your situation, you deserve to have the best money management available to you. What does available mean? Perhaps you are the best person to manage your familys money. Perhaps investing is an interest or passion, and you feel confident in your skills. But if its notif youre not certain that youre the top choicethen you owe it to yourself and your family to find that person. As a Certified Financial Planner, obviously Im a big believer in the benefits of good advicenot all advice, but good advice. I explain various ways to get help, and the various costs of assistance, in Chapter 11. For now the key is to recognize that you and your family deserve a top-notch investing game plan. You need to make a commitment to yourself to deliver it. Consistency The second C is consistency. Consistency can have a lot of meanings. Fundamentally, being a successful investor demands that your behavior be consistent with your belief system. But the way I think most about consistency is as an approach to get results. Whatever your goal may beand this is not limited to investingthere are usually two ways to achieve it: the slow and steady, incremental approach or the big-hit method. With the big-hit method, you essentially go for broke putting all your chips into one play, one client, one starvation diet. If it works at all, it works big. But even then, the big-hit results usually are not long-lasting. The consistent tactic can be much more tedious. Decades ago, when I used to sell financial products, we called it the water torture way. Some folks in the office would ignore the little clients and just hustle for a whopping sale. Others of us would take any client we could get, making any sale we could close and slowly build a clientele. Drip, drip, drip. Enough dripsenough commissionsyou had yourself a living, a living that did not depend on any single client or single sale. The same philosophy can apply to nearly any aspect of life. You dont lose weight by starving yourself one day and gorging the next. You dont get into shape by playing football with the guys Thanksgiving morning and then spending the next three days eating stuffing on the couch. You lose weight and get into shape by consistently eating fewer fattening foods and working out a certain number of days each week. The theory even applies to familial relationships. One family vacation a year cannot compare with the value of spending a consistent amount of time with your spouse and children each weekend or each day. Consistent behavior is less dramatic, perhaps, but more productive than big hits. And thats especially true with investing. Why? Because the market is pretty darn efficient. If a stock or certain group of stocks becomes extremely highly valuedthe big hitits usually got more to do with that pile-on effect Dalbars Louis Harvey mentioned earlier than actual business fundamentals. When something seems like its got big-hit potential, everybody piles on. At the first sign of trouble, they pile on out. Most investors are like my friend Debbie with her $50,000they dont get out fast enough and are left with little to show for their efforts. Thats why its better to shoot for consistent results rather than big hits. How can you apply a belief in consistency to your own investing game plan? Consistent behavior takes many forms. One example is whats called rebalancing. Say you make a decision that as part of your game plan you are going to invest 5 percent of your funds in a large-cap growth mutual fund. If six months later that 5 percent has grown to 15 percent, while your view of the fund category is essentially the same, then consistent behavior would mean youd sell a portion of that position to bring your exposure back down toward 5 percent. There are other ways of staying consistent: saving a certain amount of income each month, or automatically investing a portion of your earnings every quarter, or reviewing your portfolio thoroughly, twice a year. The key is to create a structure for your investing habits so that you dont find yourself reacting in the moment, to your detriment. Consistent behavior represents a recognition that, if left to their own devices, your emotion-driven actions might not get you the investing results you seek. By creating a systematic action plan based on your beliefs, you reduce the odds that impulsiveness, overconfidence, or those old market foesfear and greedwill prompt you to cater to momentary emotion at the expense of long-term financial gain. Courage Consistency may sound sensible enough. But in the throes of market gyrations, sticking to a consistent course takes couragecourage to follow through on your belief, courage to stand by your commitment, courage to resist the trend and stay on track with your plan. Courage is an elusive quality for even the most sophisticated investor. Managers of large institutional accounts are notorious for behaving like sheeppurchasing stocks for no other reason than because others are doing the same. Probably the most glaring example of this phenomenon is the rapid rise, and fall, of technology stocks in the late 1990s. As recently as the middle 1990s, tech stocks were a niche play pursued by the most aggressive investors. But as a few high-profile names enjoyed wild successesthe initial public offering (IPO) of Internet browser software maker Netscape Communications, the emergence of PC maker Dell Computer, the rapid growth of software maker Microsoft and chip shop Intel, and the dominance of networker Cisco Systems suddenly even the sleepiest and shiest of investors could not get into technology, and Internet stocks in particular, fast enough. Catering to demand, mutual fund companies that once offered just an aggressive growth or perhaps even a technology fund suddenly started to present a whole menu of tech choicesnew technology funds, information technology funds, Internet funds, Internet B2B (business-tobusiness) funds, and NexTech funds. Indeed, the number of new tech mutual funds introduced went from 12 in 1998 to 42 in 1999 to 90 in 2000, according to fund data tracker Morningstar (see Table 1.2). And the funds performed, for a while. For the year 1999, more than 100 mutual funds, mostly invested at least 50 percent in technology, returned more than 100 percent. |
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