I don’t trust the markets. I don’t trust individual companies. And I certainly don’t trust management of most companies. Why am I telling you this?
Because that’s one of the biggest ways people get burned in the markets: falling in love with a company, with a CEO (figuratively), with stocks in general. it has pushed me more into index investing over the past 2 years. Let’s look at one industry that is famous for terrible management: gold miners.
It’s also famous for company specific problems. And both company problems and CEO problems can sink a stock. Not only has this industry been in a terrible downtrend for a while now, but we’ve also had individual disasters at some companies and terrible management decisions at others that make this a tough place to find individual good ideas. Therefore, the ETF is the way to go for me.
Trust in Markets
Many people buy hope – today we had the market down strongly, yet buyers came in late in the day. They have hope (or a few I’m sure have valuation models that signaled buy). I did this a lot in the past. But in today’s market, with 0% interest rates – meaning assets trade all over the place because one of the major asset valuation equations used by finance pros requires an input of the current risk free rate. And zero is a difficult number to use in equations – I don’t automatically buy on dips in downtrending markets.
Yes you might miss a few % of gains IF the market goes up, but there have been enough nasty corrections in the market to caution me from buying stocks in strong downtrends. I don’t trust that it will bounce back up (though as I have mused recently HERE and HERE, BTD/BTMFD has worked well since January until recently).
Why I Blog This Stuff
I write because 1. it helps me think, almost like my rational self is explaining things to my emotional self and 2. because some friends like to know what is going through my mind during the day in the markets.
I don’t normally blog daily on this, as I often get busy and this isn’t a paid gig:), but I do when I can and hope you enjoy.
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At the time of this writing, I or my clients owned the following investments mentioned in this article: NONE