Care to guess the name of the newspaper I’ve read virtually every day for the past 45 years? Since I live in the world of business, you might not be surprised that it’s the Wall Street Journal.
Sometimes in the past I’ve suggested that a current or historical figure might have made a good financial planner but today I’m looking at a different theme – people who get excited for no real reason.
Do any of these phrases sound familiar?
• Stock market rout
• Beaten-up stocks
A recently widowed woman visited our office not long ago asking for help understanding her investment portfolio. Fortunately, she was in good financial shape but I was struck by some of her questions. While I strive for clarity both in person and in print, at one point she asked me what an index fund was.
If an investor decides that stock ownership seems like a workable strategy for making money over time, how does she or he decide which company to become an owner of, i.e. which stock to purchase? Choices abound. There are shares of around 8,000 companies currently available on US exchanges and at least that many more on foreign exchanges.
Hedge funds are periodically in the news, so let’s shine a light into that corner of the market beginning with a definition. When used as a verb, hedge means to limit or qualify (something) by conditions or exceptions. Since we know that a fund is a pooled investment strategy, we can see that a hedge fund is a pooled investment used to limit risk.
Many great fortunes have been made by purchasing the right stock at the right time but the risk inherent in the stock market means that there will always be a role for bonds to play.
Although I’ve been helping people with their investments for twenty-five years, I know there’s always going to be something new to learn so I regularly attend conventions and participate in asset manager’s conference calls. A few years ago, I was on a call hosted by Christopher Davis, a third generation money manager from the Boston area.
My previous newsletter kicked off the tour of our office wall which features quotations that I find helpful in various ways. We last heard from Peter Lynch, legendary manager of the Fidelity Magellan Fund. Next up is the current manager of Berkshire-Hathaway’s investment portfolio, Warren Buffett.
His contribution to our wall is “Investing is simple, but not easy”.
I’m turning to the Bard for the title of 2014’s first message because there are articles everywhere right now offering forecasts for the upcoming year. I never try that myself because I know I can’t predict the future. Instead, I thought I’d reflect a bit on the past to see what lessons we might learn.
Fortune magazine recently published an excerpt from a new Bernie Madoff book.