Tuesday, May 09, 2006

Dow near record high: BOO!

Ok...I must admit, although most "experts" state that once you invest money in the market, you shouldn't follow your investments on a day-to-day basis, I intently track the market on a daily basis. This advice from the experts stems mostly from behavioral economists that have shown we are our own worst enemies and tend to act irrationally when it comes to investing. We have the tendency to buy high and sell low as opposed to the other way around.

But come on, part of the fun is tracking your investments and I am guilty as charged. I find it hard to expect people to not follow their investments. The key is to not act on the day-to-day fluctuations of the market (unless you are a superstar investor). Bill Bernstein gives the analogy of walking your dog to the park. The dog will dart from side to side (day to day fluctuations) but the final destination is eventually the park.

Why am I booing as the DOW nears it's record high? Because I am relatively youngish and am buying into the market for eventual retirement. So I dollar-cost-average into my 403b and a Roth IRA every month. But the analogy of me buying into the current bull market is like buying a pair of jeans that are priced high. When we all go shopping, we look at the sale rack first and try to get those jeans cheap. This is equivalent to investing in a down market. It would be to my advantage if the market was actually tanking right now so that as I continue to invest, I am buying things on the cheap. For those that are near retirement age or are hoping to realize some of their gains, of course, it is to their advantage to have an upmarket so they can sell high.

So while the Dow continues to climb and I feel good about my investments, I really should be more disappointed as it is equivalent to buying those Diesel jeans at regular price rather than buying the Garanimal brand at Sears.
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