Posts in category Investing →

Japan and Middle East pose interesting contrasts to the investors. Yesterday I mused on the recent string of extraordinary events, one natural and the other man-made, that are shaking up these two regions, and causing ripple effects on US market.
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Two recent articles in Forbes.com speculated on the future of Apple and Google – the two darlings of the investing world.

Today’s article on Apple looked into its market valuation based on the high Price/Sales ratio, which drives its unique pattern of fast growth immediately after launching a new product, followed by a period of normalcy until the next new product comes along.
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Today’s CNN Money discusses three easy steps to becoming a millionaire:

Step 1. Time: There is really no shortcut to getting rich. The sooner you begin saving and investing (steps # 2 and 3 below), the faster you get there. If you cannot begin soon enough, retire late – the idea is to give your money enough time to grow.
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In the recent annual meeting of the Berkshire Hathaway shareholders held last Saturday, CEO Warren Buffett was asked about the best investment idea he would recommend to an investor in his 30′s. In his own words:

I would just have it all in a very low-cost index fund from a reputable firm, maybe Vanguard. Unless I bought during a strong bull market, I would feel confident that I would outperform…and I could just go back and get on with my work.

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I just came across this Savings Bond Advisory:

Given that the current fixed base rate is 1.20%, it would much better to invest in I bonds this month rather than waiting until May 1 or later. I bonds you purchase today will earn a composite rate of 4.28% for six months, followed by six month of 6.06%. These are much higher rates than are available in bank CDs or even other US Treasury securities

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(This post is a part of the series on Basics of Finance and Investing.)

The short answer to this question is that we should invest to be able to shift our purchasing power from the high earning phase of our life to the low earning phase. Many of us earn more than we need to spend in our working life (note the italic – some of us spend more on our wants rather than our needs). It is the exact opposite when we retire – we spend more on our needs than we earn. Therefore, we must have adequate funds available when we retire to live out the rest of our life.
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“I did not know enough to be scared”

69-year old Earl Crawley, while making $20,000 a year as a parking-lot attendant, still amassed over $500,000 in investment asset. His secret? Two, in fact. The first is his good old habit of saving every “nickel and dime”, and the second is his lack of investing knowledge, summed up in his quote that I borrowed above.
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And it is all in our brain. Greed and panic – the two primal human emotions – are regulated by specific regions in our brain, and they in turn control how we as investors react to market unpredictability. In an insightful article today, Jason Zweig discusses the latest advances in neuroeconomics, the branch of science that probes human brain to understand investor behavior.
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In a recent BusinessWeek interview on current market volatility, John Bogle – index fund guru and Vanguard founder – made the following comments:

In the long run, investing is not about markets at all. Investing is about enjoying the returns earned by businesses. And the stock market is nothing but a giant distraction in that quest to acquire returns that business earns.

Without telling anything new, this quote still reminds us of the big picture of investing: a buy-and-hold strategy for the long haul is the only way to escape the ravages of market swings, and to benefit from the slowly (and surely) growing economy. I recommend reading the entire interview.

There is an important difference between the two biggest single expenses in your life (if you live in America): buying a car, and making down-payment for a house. While a house appreciates in value (price goes up with time, usually outpacing inflation), the value of a new car starts depreciating the moment it leaves the dealership lot. Thus, paying 20% down for a house (the median house price was $232,000 last year) is a sound investment, whereas forking out $20,000 for a family car is not necessarily so.
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