First it got entangled in the sub-prime mess by repackaging and selling mortgages without any transparency of the risk associated with these investments. Next, a slug of Ponzi schemes started to surface, topped by the infamous actions of Bernie Madoff.

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The morning commute gives you talk radio with a stockbroker who chimes in on his favorite local company. Noontime comes around and Jim Cramer is spouting his latest picks on his Mad Money show. The dinner hour arrives and two guys who call themselves the Motley Fools are chirping away on CNN’s Larry King Live about he next hot stocks to own that will lead us out of this recession.

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Just when you think the stock market has hit bottom, it drops another 1000 points, as it did the week of January 13.

The gloomy financial numbers just don’t stop. Major banks are knocking on the Treasury’s door for a second round of bailout funds. Companies are laying off employees by the thousands. Scandals rock Wall Street to the tune of billions of dollars. Major brokerage firms are bought and sold off like a monopoly game.

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I am not saying it is an opportunity of a lifetime. . .

. . .but there is a good chance that stock markets around the world will generate some eye-catching returns over the next ten years.

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When life throws you a lemon, make lemonade.

In this case, the lemon happens to be the miserable returns the stock market has generated for your portfolio, not only during the past twelve months, but over the previous decade.

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The election is over and our country moves forward with president-elect Barack Obama, who has his work cut out for him. Unemployment numbers are up and retail sales are down sharply; proof enough that we are staring into the teeth of a fairly severe recession.

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Last week’s OP-ED piece in The New York Times, “Buy American. I Am.”, by Warren Buffett was interesting on several fronts.

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The stock market, after dropping over 800 points today, closed down 370 points, reacting largely to the growing credit problems in Europe and weakening economies in Asia. I want to share my thoughts with you in regards to the current situation.

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I saw last week where the volatility index for the stock market was running near an all time high, which comes as no surprise to me, given the 200 and 300 point swings the market seems to be experiencing on almost a daily basis. This is driven by an uncertainty over how the financial/banking crisis will shake out, fueled by the growing reliance on programmed computer trading by institutional traders.

Amid these wild short-term price swings, I received an email asking my opinion on the impact this short-term volatility will have on the longer-term performance of the stock market, and my response was, “likely no impact at all.”

In the short-run, the stock market is driven almost completely by the emotions of investors. In the long-run it is impacted by the growth and fundamentals of the underlying businesses that make up the stock market.

To that end, despite the crisis in the financial sector, the economy isn’t in a free-fall in terms of growth and productivity. Yes, unemployment is rising, and yes, the housing sector, a driving force in the economy, is in a tailspin. But we need to remember that our country is coming off a period of red-hot growth in the economy, and a certain amount of contraction is to be expected.

It is no fun to watch portfolios decline day after day and week after week, but one way to get through this period with your emotions intact is to avoid watching the fluctuations of your accounts every day. If you have created an asset allocation that is right for you based on your long term financial planning, a sell-off in the stock market of this magnitude won’t affect you long-term because your fixed income (bond, CD) holdings will cushion the downside during these months.

Longer-term, there is a strong chance that the stock market will be significantly higher two to five years out, and your stock market allocation will be positioned to take advantage of that.

If you haven’t created a financial plan that brings clarity to your longer-term financial picture, now is the time to establish one.


The stock market is having a rough year, but it is time to turn away from the 300 point swings for a moment and put things in perspective.

Through the first eight months of 2008, the broad stock market, as indicated by Vanguard’s total stock market fund (symbol VTSMX) is down 10.2%. Pundits and prognosticators alike are telling us how tough it is out there in the world of investing.

Sure, our economy is going through a rough stretch, caused in part by an increase in energy prices and the mortgage/housing debacle, just to name a few.

But, in light of the current market’s decline there is one topic that is rarely discussed by the pundits – it was due for a correction! From January, 2003 through October 2007, the stock market generated an annualized return of 15.54 percent. To put it bluntly, it would have been impossible for the market to have continued its torrid pace. Quite frankly, when you combine our current economic weakness along with its impressive performance during the recent years, I am somewhat surprised that the stock market hasn’t declined more.

It is never fun to have portfolios decline in value, but this recent sell-off is to be expected, if not welcomed. It is this very volatility and uncertainty that allows for the potential for higher long-term returns and why we invest in the stock market in the first place.

Even so, when the stock market languishes for an extended period of time, I have noticed that many investors tend to get a little antsy with their investments. It is not surprising that the Wall Street crowd starts creating newfangled products to assuage the fears and frustrations of investors. For instance, I have had many inquiries from folks across the nation wanting to know my thoughts about variable annuity investments that promise them participation in the stock market upside with limited downside risk. These annuities are usually pushed on to investors by aggressive salesmen who are looking for a hefty commission sale.

I found it interesting that not one person who inquired about these annuities fully understood the fees that were attached to the product, nor could they explain the investment parameters of the annuity involved. That doesn’t surprise me though, because the financial industry specializes in bringing to market extremely complex products with exorbitant fees attached, all pretending to help the investor through this rough stretch of investing.

Many are looking for an easy way to make money and get rich. A friend of mine, Rick Van Ness, whom I am collaborating with to bring The Coffeehouse Investor principles to college seniors, recently attended one of those mega-motivational seminars.

You have probably seen these seminars advertised in your local paper, consisting of six to ten fairly famous figures talking about different life-topics. I received an email back from Rick, and this was his report:

“One of their speakers talked about investing: how index funds would only earn 8% but their online newsletter would virtually assure 15% with its simple buy low sell high guidance, even when the stock is tanking. He got the Key Arena in a frenzy until it seemed like he had 10,000 believers that they could pick stocks and time the market better than institutional investors — because they were “nimble”. I was incredulous, but my heart sank when about 90% appeared to sign-up on the spot for his highly discounted training. It redoubles my belief that all of these people would be better off if they knew the facts. We have a purpose! There is a better way.”

In reflecting on his comments, I realize that we have a long way to go in highlighting The Coffeehouse message to investors across the nation, especially during market stretches like the current one. Our three principles are simple and straightforward. Take it upon yourself to introduce these principles to friends and family members who can benefit from them.