The Great Humiliator

Decades ago my finance professors lectured that it was impossible to outwit the market, but I stubbornly resisted their teaching. I refused to believe that I wasn’t smarter than the average bear (or bull). The next Google or Genentech was surely waiting for me to discover it before the madding crowd did.

But the stock market is the great humiliator, where one’s dreams crash against the shoals of reality. I have leapt onto and stayed too long on investment bandwagons; technology, real estate, financials, and energy---I have ridden them all up and down. My unrealized losses are a sad testament to the weakness of holding losers too long

Three elements have kept me in the game: 1) the once-in-a-decade lucky strike that more than makes up for all the crummy picks; 2) not putting too many eggs in one basket---yes, Professor Porterfield, I was only half asleep in your class; and 3) frugality—saving at least 10% of income over a long period of time and putting the lion’s share in steady mutual funds eventually leads to meaningful growth in net worth. And if you can direct your savings into a tax-deferred vehicle such as an IRA or a 401(k), the growth will be even faster.

The fact that your employer sponsors the 401(k) doesn’t relieve you of the responsibility of monitoring its performance.

Many workers with retirement accounts have built nest eggs far bigger than they ever imagined possible. But unknowledgeable ones often are far short of comfortable ……On top of all this is the havoc that the current bear market may be wreaking on older workers' accounts if they are too aggressively invested in stocks.

How have I been doing? At the end of last year I became alarmed about the economic drag of rising oil costs and the looming crisis in the banking sector. In my retirement accounts (where I allot at most 5% to speculative investments) I sold off financials, international, and technology and plopped the funds into transportation stocks, especially railroads, and cash equivalents. Since the beginning of the year the Dow Jones Transportation Average is up over 13%, while the Industrials, the NASDAQ, and the S&P 500 have moved in lockstep to the downside.

Transportations(blue), the Industrials (red), the NASDAQ (green), and the S&P 500 (yellow).

So lately it’s been going well, but I’m not fooled. The great humiliator lurks...waiting to strike during those inevitable moments of inattention and pride.