Sushi Money

Financial deleveraging.  Words that basically say the great derivatives markets are unwinding, leaving financial destruction in their wake.   Is this capitulation?  The great crash many have awaited the past few years?   I don’t think so.  The asset and credit bubble is still deflating.  Meaning, it could still get a lot worse.

For the average “buy and hold” investor (of which I include myself), these are trying times.  I sense near panic among some who are concerned that their life savings are at risk, especially those near to or living in retirement.  Are these unprecedented, historic market conditions?  Absolutely.  Can we say anything, or provide any advice that really provides context,  meaning or accuracy to these unprecedented market conditions?   No.

Some say this has been too long coming, and we’re reaping the spoiled fruit of past excess and failure.  Or hubris.  Or denial. Call it whatever you want.  What matters to my neighbors is how much money they’ll have a few years from now.

Thomas Paine, describing the beginnings of The American Crisis and Revolution said “These are the times that try men’s souls,” and his words still have meaning over two centuries hence.  Of course he was speaking of the lives and souls of those fighting to begin a new nation, while we’re speaking about the economic engine and those that live in the same nation today.

Fundamentally, aren’t the markets simply reacting as they should?  People and institutions are pulling money out of higher risk investments and seeking places to park money that can weather the storm.  When more people sell than buy, the market goes down.  But people are losing confidence, and we’re seeing media headlines such as “panic” and “jittery” as adjectives describing investor behavior.  Institutional behavior, and balance sheets, have become unpredictable.  How many more quarters are we going to see institutions keep writing down losses?

Some good folks simply cannot take it anymore, they sell everything and are now sleeping better at night knowing a core percentage of their portfolio or savings is parked in a safer place.  Others have “circled the wagons” with a well diversified portfolio that may be down, but isn’t doing too bad considering the market dynamics and they’re hanging in there.  But many people are down 15% to 20% for the year, and are really wondering for the first time if now is the time to get their money out completely before some ultimate crash.

Yet with an investment time horizon beyond 5-10 years, most financial planners and advisors will say “Stay put.”  You pull your money out now, and then you miss the next advance, and maybe the next after that, whenever that comes.  Or you don’t put your money back in the market at all, letting it grow incrementally in a bank or CD account through the years.  Is that the answer?  Not for an investor.  History has shown that staying the course with a diversified investment portfolio is the winning investment strategy over the long term.

But how does that apply when we are making history with the market events taking place, and no axiom or ground rules for investing seem to apply?  Investing and staying the course today seems to take a sort of twisted determination, or maybe a fatalistic approach to the future.  Que Sera Sera?

Many folks don’t see the long term anymore, and watching one’s investments “bleed” 20% or more from last year’s highs is psychologically painful.  Through it all, I still tell myself to “Sit Back and Be An Investor” while watching the market turmoil, and I feel no different today:

“You’ve got to decide where you stand. And for how long. Sometimes selling is the only thing that brings your sanity back. Even if it is the wrong decision. But sometimes you’ve got to say “What the hell…” and just leave things be for a year or two.”

“Most of the time I try to “sit back and be an investor.” Sometimes it’s pretty damn hard to do.”

And honestly, it’s a simple prospect.   I’ve got 15-20 years to a planned financial retirement so the “long term” has real meaning.  I want my investments to grow and I’m willing to wait.  But “it ain’t pretty,” and I don’t enjoy the ride.

So tell me, have you got a better idea?   Aside from my investments, I’m saving money too.  A little each month to various savings or money market accounts, and paying down debt where I can.  Where else would I put money?  I think I would save more aggressively over time and work harder to become debt free altogether.  One day…

For now there is no short-term panacea for riding out the market gyrations.  If you can’t stand it anymore, then get out and move on.  If you’ve got time and the fortitude to stay the course, then hang in there.

One thing I do know, it can always be worse.  Just watching the news about Hurricane Ike’s aftermath and the folks on the south Texas and Louisiana coasts this week provides a humble reminder that life itself hangs in the balance for some.  Hang in there friends.

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