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Calming words for troubled times

Calming words for troubled times
For guidance in these unsettled days, we corralled some of the best minds in investing. What we got was wisdom, perspective, reassurance - and a couple of TV viewing suggestions.

William Bernstein
Financial theorist and author of "The Four Pillars of Investing: Lessons for Building a Winning Portfolio"
Get out of the market? Of course not, silly. If you think about it logically, you are rewarded for owning stocks precisely because they are risky; the dicier things look, the more money you can expect to make in the long run.

History bears this out: The lowest returns were earned by buying high when there was a lot of blue sky - think 1928, 1969, 1999. And the best returns were earned by buying low in 1932, 1942 and 1982, when it looked like the whole world was going to hell.

One more thing: Stop watching CNBC. It will make you stupid and poor. If you must watch, turn off the sound. It becomes an excellent substitute for Animal Planet.

 Henry Blodget
Reformed Internet stock cheerleader and author of "The Wall Street Self-Defense Manual"
Don't pick stocks. Don't time the market. Don't change strategies as market conditions change.

Do continue to invest a set amount each month in a globally diversified portfolio of index funds covering all major asset classes. If an asset class tanks, take advantage of the opportunity to buy it more cheaply by rebalancing.

Terrance Odean
Professor of banking and finance, University of California, Berkeley
Try to take your mind off the market. Go to the beach or, if you are so unfortunate as to live on the East Coast or in the Midwest, go to a movie. Dashiell Hammett might help. (The last time I needed an escape from financial worries, I read three Hammett novels in quick succession.)

If you still can't get respite, your exposure to stocks is probably larger than your emotional capacity for risk. Hang on for a couple of weeks and when your emotions and the markets have settled down, discuss with some knowledgeable person how you might restructure your portfolio.

Meir Statman
Professor of finance, Santa Clara University
Understand the pull of your emotions. Gains are fun. Gains bring pride. Gains promote optimism about the future. Losses bring sadness, fear, regret and pessimism.

We are naturally drawn to improving the state of our emotions, which is why people are tempted to get rid of their losing stocks. Develop some resilience.

My parents were 14 when they escaped from Poland as the Nazis were advancing in 1939. They met and married in Uzbekistan and went on to make a life for themselves. What is a 20% or even 70% portfolio loss compared to that?

William Goetzmann
Professor of finance and director, Yale's International Center for Finance
Calmly assess if your portfolio is diversified. If it is, that's the best you can do.

You may get lucky switching to cash or you may not, but history suggests a diversified portfolio with a significant share in equities will do well in the long term.

 William Goetzmann
Professor of finance and director, Yale's International Center for Finance
Calmly assess if your portfolio is diversified. If it is, that's the best you can do.

You may get lucky switching to cash or you may not, but history suggests a diversified portfolio with a significant share in equities will do well in the long term.

Charles D. Ellis
Author of "Winning the Loser's Game" and chairman, Yale University investment committee
You should do nothing, absolutely nothing with investments.

You can hold your spouse's hand, and that would be fine. Or go where you would normally go if you were grieving about something. But in general, "Don't just do something, stand there."

The worst time for action is a period of distress - those are the periods when we make mistakes.

Robert Arnott
Founder and chairman of Research Affiliates, a developer of investment products
The way to respond to this kind of market is not to ask yourself, "What do I do to make money in the next three months?" but "What would I want my portfolio to look like over the next 30 years?"

Then use the market's volatility to move yourself in that direction. And look for opportunities to buy things that have cratered beyond all rationality.

Eric Bjorgen
Co-manager, Leuthold Asset Allocation Fund
Now is not the time for wholesale selling. That should have been done a long time ago.

We don't think stocks will be bad for long. Since World War II, the average bear market has lasted about a year.

Usually stocks bottom out about halfway through, which would put a recovery around June if the market follows typical patterns.

David Laibson
Professor of economics, Harvard University
Individual investors should not try to play the market. They should hold a long-run diversified position and should not tweak that position in response to weekly news events; in fact, they should not tweak that position in response to major annual news events. The market will have priced in those events long before individual investors can respond.

Just sit on your hands.

Mark Kiesel
Portfolio manager, Pimco
You should be buying municipal bonds. They are yielding more than Treasuries (3.02% tax-free vs. 2.75% for five-year maturities). That rarely occurs.

John Bogle
Founder and former CEO, Vanguard Group
I've seen, myself, nine bear markets and I never find it particularly amusing. It's easily possible this will be Bear Market No. 10 for Bogle.

And the perspective from all those bear markets is that no matter what stock prices do and how ridiculously they may be valued, the underlying strength of American business - earnings growth and dividends - will bail you out of your mistakes.

Sure, it'd be great to get out of stocks at the high and jump back in at the low, and if you know how to do that, then do that. But I've been in this business 55 years and I don't have any idea how to do it. In 55 years in the business, I not only have never met anybody who knew how to do it, I've never met anybody who had met anybody who knew how to do it.

Liz Ann Sonders
Chief investment strategist, Charles Schwab
Many investors are doing the wrong thing, shortening their time horizons, trading faster. Commission costs are low, and you can make a trade with the press of a button.

But the more volatility increases, the more investors should lengthen their time horizon. A study by Dalbar found over the 20 years that ended in 2006, the annualized return for the S&P was 12%, while people who tried to time the market lost 2%.

Liz Ann Sonders
Chief investment strategist, Charles Schwab
Many investors are doing the wrong thing, shortening their time horizons, trading faster. Commission costs are low, and you can make a trade with the press of a button.

But the more volatility increases, the more investors should lengthen their time horizon. A study by Dalbar found over the 20 years that ended in 2006, the annualized return for the S&P was 12%, while people who tried to time the market lost 2%.

Victor Canto
Chairman, LaJolla Economics and author of "Understanding Asset Allocation"
I always say go 60/40 - that is, 60% stocks/ 40% bonds. Stocks are down about 11% since the beginning of the year. But if you had a 60/40 allocation, you would be down by only about 5% for the year.

Mellody Hobson
President, Ariel Capital Management
As an investor, I'd be waiting through this period. If I were an investor with courage, I'd be buying because the most money is always made in times of extraordinary pessimism.

But don't buy what's hot. Right now there's an energy bubble, a commodities bubble, going on. And a lot of people are jumping on those bandwagons thinking those stocks will only go up. You'd be very, very late to that party at this point.

Mark Mobius
Executive chairman, Templeton Asset Management
In view of the tremendous price changes that have taken place, it's probably a good idea to look at possible bargains out there, but there really is no rush.

When you have this kind of panic, valuation changes don't come too fast. So take your time. Blue-chip companies in the U.S. that make money globally are the ones to look at.

Peter L. Bernstein
Economic consultant and author of "Against the Gods: The Remarkable Story of Risk"
Buy on the dips? It's a sucker's game. I would wait until there is some light at the end of the tunnel, even if I buy well off the bottom. There is no light now and there will not be until home prices stop falling.

What about diversification? I never rethink my customary approach. I swear by it. I am ignorant of what the future holds, so I want all my bases covered.

 Ref : http://money.cnn.com/galleries/2008/pf/0804/gallery.expert_opinions.moneymag/index.html

 

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