Recently, I went to an Investment Club at the local library just to see what goes on. I have never been to one of these meetings and going in I thought a small group of people got together to talk about broad topics to help each other manage their personal finances. What I experienced was something quite different.
When I walked in the large darkened room I immediately saw two iPads and a projector screen with a stock chart. Two older men were sitting at a table running the iPads and three other people at least 20 years my senior were sitting at a separate table staring up at the chart. I couldn't tell if they were in awe or if they were confused by all the crossing lines, bars and numbers. My hope turned to skepticism.
I introduced myself and said I was there to learn more about personal finances and hopefully clarify some questions I had. Everyone was nice and appreciated that a young person was attending their weekly session. We went around the room, with each person giving their thoughts on the stock market and what they did in their accounts in the last week.
The only lady in the group said she had read an article on a blog site about how the financial system was going to collapse. She said that everyone will lose their money in a digital meltdown because everything gets aggregated in one account at a broker and there are no physical documents to confirm or substantiate claims on their money. She wanted to know how she could get stock certificates to put in her fire safe. I immediately thought of the movie "Fight Club" and their goal of wiping the debts of society clean by blowing up all the servers and computers inside financial buildings. This lady was completely convinced that she was going to lose all her money so she sold all her investments and was "waiting for the right time to buy." The other members told her to go buy real gold coins or bars and store it in a safe. One person added not to put her safe in the closet because burglars know to search there first.
After the lady had her turn, the next four people talked about how they traded in and out of stocks like IBM or GE trying to earn fifty-cents or a dollar on each share. One person believed the market was going up and then the next person said the market was going down. They would look at 50-day moving average indicators, momentum, share volume, or consult a Taro reader. Kidding on the last point!
Seriously, these people were not investing or trying to create a strategic plan for their finances. They didn't have any serious data or information to back up their reasoning for why it was going go one way or the other. It was just hunches or feelings. All they were doing was gambling their money with stocks. No one knows what stocks are going to today, or in the next hour, or next minute. The chances of winning in a single day are the same as flipping a coin. But, if you spread the time out over ten years the chances of winning, historically, have increased to 89%.
What I believe is buy and hold is more important than ever, trying to time the market doesn't work, spend a great deal of time on asset allocation, rebalance and use low cost index funds. Also, remember investments is just one part of our personal finances. Risk management, estate planning, taxes, and retirement goals should be thought about and planned just as thoroughly as our investments.
