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Weekend reading: Whither investing goals and the weather?

Weekend reading

Some great investing articles from around the web.

This week my favourite post was really just a quote. It came from sporadic blogger UK Value Investor who wrote:

Having a returns goal in stock market investing is a bit like having the goal of it being sunny tomorrow.

What a succinct way of putting it. Bravo!

Of course, as someone who writes 1,000 words when 100 will do, I don’t think his pithy aphorism tells the full story. His quip focuses on tomorrow, but his actual goal has a five-year time horizon.

Whether the market will rise or fall tomorrow is almost a 50/50 call. (There’s a slight bias towards it rising). It’s practically a coin toss.

But as we’ve seen from looking at returns from stocks and volatility, the odds of superior returns from the stock market increase in step with the length of time you’re invested.

To extend the weather metaphor, we’d question the sanity of a farmer who refused to plant his corn because the forecast is for rain next Tuesday. He’s planting in the reasonable expectation of enough sunny days over summer to deliver his harvest.

Or what would you think of a wine producer who tore up her vineyards when she realised she can’t predict the weather a decade out?

Madness: in reality she’d look at the location, the terroir (French for mud, basically) and the witty bottle labeling she has in mind to amuse dinner party guests in a decade or so, and then she’d put her feet up with Jay McInerey’s wonderful A Hedonist in the Cellar and trust in the law of averages.

It’s the same when investing. We can’t know what the market will do tomorrow, but we can prepare ourselves with a well-diversified portfolio and a long-term plan. (And if volatility really scares you, consider investing with a focus on income, which is usually more stable than valuations).

UK Value Investor’s quote is excellent, and I’ll be using it in the future myself. It’s a great reminder to be wary of banking on spreadsheets and average returns. After a good run for equities like we’ve enjoyed recently, it’s all too easy to get complacent.

But real life investing has a habit of raining on your parade. Or surprising you with a rainbow.

From the money and investing blogs

Money Maven roundup

Mainstream money

  • The world is poorly placed to withstand an oil crisis – The Economist
  • The shock over Barclays’ tiny tax bill – The Economist
  • How market timing can wreck a portfolio [A few weeks old]NYT
  • Quick obit for the Goldman Sachs banker who turned passive – NYT
  • 10 unusual investment trusts – The Motley Fool
  • ‘Cautious’ fund label to be scrapped for pensions – FT
  • Why people don’t invest – FT
  • Banks gazumping buyers of repossessions – FT
  • The case for gold – Merryn/FT
  • UK economy slowed even more in Q4 than we thought – Telegraph
  • How to buy your flat’s freehold – The Guardian
  • Hi-tech solutions to high energy bills – The Independent
  • An Indian buying opportunity – The Independent

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{ 5 comments… add one }
  • 1 Alex February 26, 2011, 1:20 pm

    Hi TI. I like your qualification – “A few weeks old” – on that NYT article about ‘market timing’. The irony, of course, is that the message of the article is always timely.

  • 2 David February 27, 2011, 11:37 pm

    Congratulations on being mentioned on Get Rich Slowly.

  • 3 The Investor February 28, 2011, 12:03 am

    @Thanks David! (Nice to hear from you, btw 🙂 ). I just left a comment thanking JD and giving some info on ISAs but it hasn’t shown up yet. Hopefully it’s in moderation!

  • 4 David February 28, 2011, 3:45 am

    Investor: I’ve been reading all your posts, I’ve just been quiet. Maybe I’ll start being more vocal in the future. I think JD is travelling in Africa, that might explain the delay in the comment moderation.

  • 5 The Investor February 28, 2011, 11:28 pm

    @David – Please do! 😉

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