3.16.09
from Oakland, CA
This morning I was thinking of a conversation I had recently. I was asked by a couple what they should do now with their money. After the market had fallen over 50% since last September, and with it appearing to be on the way up, they were confused about what to do. And in this situation, it’s difficult to tell someone what to do going forward because they have lost so much, and they feel, like a lot of people that they might “miss” an upswing if they sold now. Furthermore, I know they want to hear some magic words that will recover their losses in a short period of time.
But the problem is, even if the market rallies 50% , my inquisitors will not even be close to their previous balances. Therefore, I don’t think they will recover their losses too quickly. Moreover, since we avoided most of this mess, we’re not looking to “make back” what we lost so it is a different perspective – and just because we missed this mess it does not give us the crystal ball to see what will happen next. So it’s hard decide what to tell people.
I also think that the “art” of money management is much less glamorous than they imagine it to be. People must have these images of a good money manager making a great discovery and piling all their money into an investment and making it big. The truth is, day to day, it is quite an unnerving experience to manage assets.
First, you have ideas and do research to try to exploit the idea (or an idea pops up, or a news story creates an idea and you follow up, etc). then once you locate an acceptable way to exploit that idea, you must then decide how to proceed (time frame). Often this includes feeling out a new idea or building an idea slowly. Also, the size of a position, in terms of percentage of your total assets, is also critical to determine.
When a layman discovers the art that goes into this process, I am sure they would find it somewhat boring – and it can be! Just as many dream to be artists but recoil when they learn it requires a lot of tedious training to learn and tedious work to create (Mozart-types excepted), most tend to lose their romantic image of my world and lose interest when they learn of the tedious details (there are many though, do continue to try without the research and keep hurting themselves – not sure where this desire comes from).
With all this being said, you can see why it is hard to give someone a solid answer. And there certainly would be NO easy, simple answer. It would involve acting on research in a measured way – which is probably not what that couple wanted to hear.
As an example, right now, I am developing a revenue/earnings model and financial report for a silver mining company – it is a bit tedious but also exciting; however, even though this kind of diligence is highly necessary, I’m sure many of you would not feel the same.
Have a good Monday.
Chris Grande
First you
