Money Obedience

The Sage of Omaha, Warren Buffet, has written in the New York Times that he is putting his own money into the market now. He oughtto know what he is talking about. He is the best investor alive, which happens also to have made him the richest man of the world. Aside from all that, he offers what sounds to me like a sound opinion that could also bring profits to the average investor. His comments made me feel better, that's for sure. As I have written in a recent blog and in part 2 my wife and I have decided to stick with our current investments and to keep making contributions to our 401k retirement plans. So, we have been following, if not anticipating, Buffet’s advice.

When investors are as frightened as they are now, there is a good chance that the sell-off in the stock market has run its course – at least for the time being. I believe the decline isn't even done yet, and still, I think it is a good idea to keep adding to one’s investments, and to keep making 401k contributions or regular payments to an IRA. I know that I am likely unable to catch the lowest prices during this market decline, but I also know that by adding money to my investments I will own some pretty cheap stocks in the long run. Sure, I'll own some expensive ones I acquired in previous purchases, but I'll also own a bunch of cheap ones. Does it make sense for me not to buy cheap when I already have bought them at the time when they were expensive?

Sure, things look pretty bad in the economy, and in the stock market, too. But it is not like every stock will go to zero. Some companies may go bankrupt and send their stock values to zero. To protect myself here, I buy index funds that put together many stocks. It would not matter all that much if a few of them went under, because a large majority of the stocks in an index fund will always have a value. And that value will rise when the economy turns around. That could be a year from now, two years from now, or even ten years from now. I'm neither clairvoyant nor smart enough to know when this turn-around will happen. I only know that as sure as an economy hits a recession once in a while, it will also expand again, at some point. We have been privileged enough to have lived in a time of extraordinary economic growth (during the last 20+ years). But let's take care not to be spoiled and unrealistic with our expectations. The economy, the stock market, and, well, life itself, all have their ups and downs. We have to be ready to face both the ups and the downs. In fact, I'd say that life's ups and downs are the things that add spice to our lives.