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Emotions and Investing Do Not Mix

August 25, 2014 by Leave a Comment

Today I’m guest posting and commenting at the personal finance blog Frugal Rules. Click the link below to read about why emotions and investing don’t mix, including some boneheaded investing mistakes I’ve made through the years when my emotions got the best of me.

emotions and investingSome things fit perfectly together. Peanut butter and jelly. Batman and Robin. Yellow and blue. Separately they have value. When combined they create something extraordinary.

The same cannot be said for emotions and investing. Like oil and water, they simply don’t mix. There is no place for emotion in the investing world if you want to have success.

My Emotional History With Investing

I started investing in 1996, just after my wife and I were married. It was the height of the 1990s bull market run that saw computer, technology and Internet stocks in particular soar to record highs. A company could go public one day and be at $200 a share the next without ever making a single penny in profit. (That’s a slight exaggeration but accurately defines the lunacy of the time.)…

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Do You Want to Beat the Market for 60 Cents Per Hour?

May 21, 2014 by 10 Comments

The following is a guest post from Graham Clark at Moneystepper.com

Pennies falling out of a tipped over jarWhy do we invest? Presumably, we all invest money to obtain the best returns we can to improve our financial future. Effectively, this means that we are investing to earn money.

We invest in the stock market because we think it “pays well”. Investing in the stock market (assuming we can earn the market returns of the S&P 500 since 1970) can earn us 15.79%. Alternatively, holding money in cash returns approximately 5%.

Investing in the stock market is therefore the equivalent of working at a legal firm instead of McDonalds – the wages are better.

Hourly wage of investing

Let’s say you have $10,000 invested in the Vanguard S&P 500 (with an annual TER of 0.1%). Therefore, your average annual return, after costs, is equal to $1,569. How much work did this take? To set up your Vanguard account and buy the fund, and then to completely forget about it for the year, probably takes about one hour.

So, you are earning an hourly basic wage of $1,569 per hour. Not bad. Well done you!

Now, I’m going to give you the opportunity to earn another 60 cents per hour. Would you like to do that?

You probably wouldn’t. Moreover, you would probably report me to the authorities for exploiting my employees!! But, millions of people are doing this when they are trying to beat the market.

Can you beat the market?

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How Are Various Investing Markets Related to Each Other?

February 20, 2014 by 3 Comments

The following is a guest post by Troy Bombardia.

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Commodities: An oil refinery at dusk

In the world of investing we have something that is known as correlation. The basic definition of correlation is simple: how do changes in variable X affect changes in variable Y (oh no, more math!)?

Correlation and relations exist in the financial markets. Changes in the price of certain markets (i.e. stocks) will have impacts on prices in other markets (i.e. bonds, currencies, commodities). In this post, I’m going to examine how various markets are related to each other (their correlation).

Why is it important to understand the relationships between various markets? Because if you know how one market is reacting and what relationship other markets have to this market, you can predict what the future price of other markets will be (which equals more profits!).

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Global Shares Plunge! OMG…The World’s Coming to An End!

February 5, 2014 by 20 Comments

ID-100178554It’s another typical early morning. With a busy day ahead, I’m getting a bit of writing done before the kids drag themselves out of bed and downstairs for breakfast. I’m clicking around the Internet and wiping the sleep from my eyes when I’m greeted with this headline from Yahoo Finance:

“Global Shares Plunge as U.S. Slowdown Adds to Emerging Markets Woes”

I quickly pulled up a stock chart and noticed the financial markets have been in a free fall since the start of January. As of this writing (the morning of 2/4/14), the Dow Jones Industrial Average has fallen over 1,200 points (about 7%) since Jan. 1st. Many are calling for another 3-5% drop from here. Yikes!

Well, faced with that news what could I do? I grabbed my shotgun, some bottled water and my case of Ritz Crackers ‘n Cheese and headed for the bunker I’ve built in the basement. It’s fully stocked for Armageddon. The wife and kids will have to fend for themselves.

Clearly the world is coming to an end.

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