November 21, 2008

Buy and Hold Investing is DEAD!

By IdeaMan21

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There, I said it. It hurts to say it but look at the evidence over the past 2 months. If you invested in the Stock Market in 1997 your stock is worth the same as it was then. Is that what you call investing. You could have left it under the mattress and ended up with the same thing, except you wouldn’t have fooled yourself into thinking that it was worth more 2 years ago and you wouldn’t be hurting today realizing that it is worth the same, or less if you count inflation over the 10 year period. Hopefully we won’t see deflation.

Stock Market Investing really looks like it may be heading back to the 1930’s. Not old enough to remember the 1930’s, me neither. But I can read and watch history videos on the internet and on the history channel. Also PBS’ Nova ran a great program last week called “The Great Depression”. I thought that I had read enough about the subject but I learned a couple of things. One, that the stock market was completely rigged by a handful of big shots. Two, that once J.P. Morgan the man stopped a sell-off all buy himself by walking across the street into the board of trade and yelling that he was buying. That was all that it took for the mass hysteria to subside. Three, 5 months later no one man could stop the collapse, because several tried, including J.P. himself again.

Another thing that I never realized was that it took 25 years, yes I said TWENTY FIVE YEARS for the market to return to the highs of 1930’s. That means it was way after World War 2 and Elvis Presley. Our economic system was brought to its knees and it took a victory over Germany and the subsequent raiding of Germany’s scientists and (innovations) patents to turn the United States of America into the financial leader of the world. Who knows how long it would have taken to get the market back without that war and infusion of talent and expertise.

I have felt an uneasiness about our economic situation for years. I couldn’t understand how people were buying all of these big houses and complete neighborhoods were popping up everywhere I turned. It didn’t make sense to me and I guess we all now know the reason why. It didn’t make sense to loan people money on a house they couldn’t afford by banks and investment houses that didn’t have the capital to cover the mortgage if the homeowner defaulted. And then to make it even worse the Insurance Companies were brought in to insure the risk without a clue to what they were insuring or where or who. Crazy. It took 10 years or so but the roosters came home at last, and our financial empire is going down with it.

If you study the market or watch the programs on TV, my favorite is Closing Bell on Bloomberg and Fast Money on CNBC. Fast Money is excellent and lively and full of ideas daily. It is on at 5:00 pm Eastern time. Anyway, you now can see that the market is not following any fundamentals anymore. Strong balance sheets or cash on hand or a great CEO or Warren Buffett buying your stock and telling everyone that can listen to buy and hold, nothing has stopped the collapse. What I didn’t mention about that Nova “The Great Depression” is that quite a few of those big shots lost everything they owned. J.P. Morgan didn’t, but almost. I’m afraid that Warren Buffett might be falling into this category himself now. I know he is the most successful trader in our generation, but all of his success came in a different climate than what we have now.

Mr. Buffett bought shares of Goldman Sachs 2 months ago and has lost 50% of his value. This has never happened to Mr. Buffett and I bet he is starting to feel like the rest of us on a trade we’ve made that is moving in the wrong direction. Except he spent $5 Billion dollars!!! This isn’t the only thing that he is losing money on and if you have been paying attention you may have noticed that today 13 of the 30 Dow Jones Industrials hit their 52 week low. If you are into technical trading you know that that is a really bad sign. The bottoms were blown through today also which means now we must be searching for a new bottom for the markets, all three of them, the DOW, the NASDAQ, and the S & P 500. We are in a free fall with no idea where we will land.

So when I say Buy and Hold Investing is dead, I’m just looking at the situation through clear glasses, not the rosey ones that I usually use. When fundamentals doesn’t matter and confidence induced allegories doesn’t matter and the Federal Reserve backing your assets doesn’t matter, BUY AND HOLD IS DEAD. But there is a way to take advantage of this market still. Its in the DOLLAR.

But before I get ahead of myself I think that I should introduce you to probably one of the few people who had this figured out years ago, in fact, he has written 2 books on the subject and if you google his name and go to youtube you will find massive video evidence even as early as two years ago and as late as April and May of this year of him predicting the housing collapse and then the investment bank collapse and next in line is our entire financial system. Unfortunately, he has been right so far about many things. His name is Peter Schiff. He was on Fast Money today and he blew the doors off of the myths going around about this being a recession that lasts 6 to 9 months. He called the recession a year ago and he also said gold would hit $1000 an ounce, which it did this summer. He is now predicting Gold to hit $2000 an ounce by next year some time and possibly going much higher when the Dollar collapses.

Hopefully he is wrong, because if he is right our way of living is going to change on a drastic level. Depending on your age, we may be about to have to go through what our Grandparents or Great-Grandparents went through in the 1930’s. We have let our country go from being the largest producer of goods to being the largest consumer of goods. The only thing we make are cars, tractors, weapons and corn and wheat. We buy 1000 times more than we sell and we now as a country are in debt to the tune of $10 TRILLION DOLLARS. Between Reagonomics and the past 8 years of Bushonomics with a little of Clintonomics thrown in we have destroyed our manufacturing base and now depend on the rest of the world to make things.

Peter makes the point that the person who makes things can sell them, the person who just manages money and fools people into thinking it is worth more than it is when it is not backed by anything (like Gold) is in a whole lot of trouble when the bubbles burst. As I write this today the toy company Mattel, who makes Hot Wheels, is worth more money than General Motors, who make actual cars. How can this be possible? Only in an imaginary universe of inflated dollars and witchcraft like confidence in a system that has been preached repeatedly for 30 years. The only thing holding us up is that the world still has some confidence in the Dollar. But Peter thinks that that is about to end, and that will devastate our system.

So start investing in other countries currencies. He has been right so many times and on so many subjects that I say what the hell do you have to lose? I have found an automatic Forex Trading Program that is returning excellent results and you should take a look at it also. Peter says the dollar is going to collapse so if you start investing in currencies now you can than be rich in Euro’s or Swiss Francs, which will make you extremely rich (compared to your neighbors) in Dollars.

Go check this out and get started in sustaining your lifestyle before its too late: