We've had this discussion before and this was my take a couple of years ago
http://www.early-retirement.org/forums/showpost.php?p=438827&postcount=5
If you are a trader, you have to look at the markets, but there are a lot of followers out there and darn few leaders. If you look to the market to tell you something other than what it has already done, you're looking in the wrong place. Lot's of people are prognosticating, but nobody
knows what's going to happen.
When it's all over, there will be plenty of people pulling out charts and pointing to specific events and saying "See, right here, that's where it all started!"
But how many of them saw any of these coming?
List of stock market crashes - Wikipedia, the free encyclopedia
1987 smacked me pretty hard and my freaking out meter was pegged until I talked to someone who gave me good advice. After that the rest of them really didn't bother me until the dot-com thing. In fact, I guess I completely missed whatever happened in 1992 that Brewer referenced. Of course '92 was a year of 80+ hour workweeks and I don't think I even opened any of my statements until 93 or 94.
As for 2000, you could see the dot com bust coming from a long way off, and it only got me because all the tech stuff drug the rest of the market down with it. I didn't freak out, I was just disappointed with myself that I didn't recognize how it would affect my non-tech portfolio and take some profits while it was all up.
I have done some shorter term trading with a small percentage of my portfolio. But only with money that is not vital to what I need to live on in the future. If I hit it big then I get to take a nicer trip, or buy a nicer car, or whatever. If it craps out, I won't be eating dinner from the free sample trays at the grocery store. But that's more like playing with the market than investing.
If I had to make a bullet list of what I've learned from all of these fun events it would look something like this:
- The absolute minimum time horizon I should have for my investments is five years.
- Longer time horizons work much better. I prefer ten years out and farther.
- Any money I want to spend from my investments in the next five years should be in cash, today.
- The traders and the financial media have an outlook that varies from this afternoon to about 18 months out.
- Pay attention to what the traders and the financial media talk about, but don't confuse your time horizon with theirs. Therein lies a quicksand of madness.
- Good companies in good industries that make a profit, aren't burdened with a lot of debt, have a decent market share and have sane management that isn't doing stupid things are the places I want to have my long-term money.
- Watch to see where the herd is going, but don't blindly follow.
- If everyone is talking about a certain sector, and everyone is throwing money at that sector, run away as fast as possible. Unless you want to take the chance that you'll be an owner when it goes to hell - because it will tank eventually.
- Anybody who says "this is different" is wrong.
- Anybody who says "this is the way to riches without risk or effort" is wrong.
- Investing in anything that you can't explain how it makes money, in less than 5-minutes, is dumb.