Is This a Good Time to Invest?

Is this a good time to invest?  Market timers and stock pickers, both pros and individuals, debate this question all the time.  The evidence is that they tend to miss it.  Many times we focus on longer term evidence, but the longer term is made up of the shorter run.

Last year was a great case in point.  In October, it looked like the world was coming to an end.  The U.S. Congress was at an impasse and seemed incapable of increasing the debt limit ceiling.  Europe was falling apart, and it appeared obvious that Greece was on the verge of leaving the European Union with Spain close behind and possibly even Italy down the road.  Abandonment of the euro and its attendant uncertainty was the buzz of the day.  Topping off all of this was economic data suggesting the U.S. may be going back into recession.

With this backdrop, any brilliant, analytical portfolio manager would sell; and, from performance results, it appears they did.  Unfortunately (for them!) the market rose sharply through year end.  As a result, huge state pension funds produced anemic returns and hedge funds got clobbered.  Once again, the brilliant, analytical types were not smarter than the market.

Take A Longer View

There is a different approach.  Rather than trying to outguess the market on a short-term basis, take a longer view.  This approach recognizes that the world 10 -15 years from now will be wildly different from today.  How do we know this?  Just compare today with 15 years ago.  Look at smart phones and tablets.  Tablets of today are the Pong games of yesterday.  Look at automobiles and advances in medicine.

Does anyone doubt that the automobiles we drive 15 years from now will be completely different from today's.  The laptops and other electronic devices will all be replaced with products beyond our imagination.  I know this is hard to grasp for many.  Maybe it requires a certain age.  Fifteen years from now, people will be saying "Merkel who?" as they project the TV program they recorded three hours ago onto the wall from their smart phone.

I am of a vintage whereby graduate school involved going to the "stacks," getting journals, and xeroxing articles that were months old.  Today, students with a laptop have access to the latest research in many areas and the ability, in many cases, to interact with the researchers.

Anyway, to help along these lines, I submit the following video found at Biz of Life's site.  As you watch this video, I suggest you free your imagination and think of the possibilities in the so-called "information age."

Dimon Testifies on "The London Whale"

Today is likely to be a 3-ring circus as Jamie Dimon, JPMorgan CEO, testifies to Congress on the $2 billion losses incurred by the London trader known as "The Whale."

Dimon is another case of someone telling everyone else how to live and turning out to be a major sinner.  The bottom line is Dimon had weak risk controls in place and has made himself a poster child for a chops-licking Congress to skewer.

But there is another more important message, IMHO, for the individual investor to contemplate, emphasized by Dan Solin in "The Hidden Message in JP Morgan's $2-Billion Loss."  Consider that J.P. Morgan is one of the biggest trading entities in the world.  Bruno Michel Iksil, aka "The Whale," is obviously brilliant - you don't get to aggressively trade the size he traded at J.P. Morgan unless you are pretty smart.  He obviously had the very best resources including sophisticated value-at-risk models, the top graduates from the nation's business schools, etc., at his fingertips.  And still - he lost billions!

The message for individuals to contemplate is whether the fast-talking rep from the mutual fund provider/wealth manager promoting their stock picking/market timing skills can really do what they say they can do.  Dan Solin, author of The Smartest Money Book You'll Ever Read, says

The massive loss suffered by the bank is yet another indication of the inability of this huge institution (or anyone else) to predict the direction of the markets. Yet, the entire securities industry is premised on the false assumption that its members can add value by stock picking, market timing, and fund-manager picking.

He further points out:

The real skill of these "wealth managers" lies in their ability to convince you they have an expertise that doesn't exist. This latest debacle is one more example demonstrating the irrefutable fact that these investment gurus are emperors with no clothes, representing a significant, little-understood peril to your financial security.