In Times of Economic Uncertainty

Something freelance I wrote that didn't get published. I can see why lol.

The phrase "in times of economic uncertainty" always cracks me up. Lately we have been hearing it a lot from banks, insurance companies, car commercials, and everybody else that wants a piece of your financial pie. The truth of the matter is simple, all times are times of economic uncertainty regardless of the state of the economy. Before the collapse of the stock market, so many speculators were certain that the only place it had to go was up, that when it all came crashing down around their heads, they panicked like a herd of sheep being chased by a pack of rabid bears. I will let you in on a little more news; no matter what you hear, there is no such thing as a simple and foolproof investment system. If there was we would all be rich and the world would be a magical place where Santa Claus actually existed. So what's an investor to do?

Go to any bookstore and take a stroll up and down the aisles of the investing section and it I guarantee that you will find a book about Warren Buffett, if not several. Why is this man such a giant in the investing world? Quite simply because he is the best. He provides more results more consistently than any professional investor, not to mention the fact that he is a $62 billionaire, which is also nice. So then, wouldn't it be smart to analyze his investment style and see just why he is so ridiculously rich? Yes, yes, it would and that is just what many of these books try to do.

If you were to dig deeper into this Warren Buffett character's history you will find that he actually was not the mad genius behind his style of investing, but he in fact learned his art from the Wall Street Jedi masters Benjamin Graham and David Dodd who authored the investment tomes Security Analysis and The Intelligent Investor. One of the first clear points that you will distill from the myriad of information presented in these books is that there is a distinction between a "Speculator" and an "Investor". A speculator is somebody who bets on which direction the market will move based on charts, graphs, their gut, the weather, tea readings, seyonce, or whatever method catches their fancy. Essentially a speculator is no more than a glorified gambling junkie whose preferred method of cash hemorrhaging is the stock market. An investor on the other hand remembers that the stock market is composed of real companies that provide real products to real people every day. They keep in mind that even though the countless horde of speculators are constantly causing fluctuations in the price of a stock, in the long term the price of the stock will boil down to one simple thing: The performance of the company that issues it.

Yes, I know. It sounds so simple, and it is -- to a point. If you have ever seen Security Analysis you would know that it is not a book you want dropped on your foot and there is a reason it is so thick. In order to understand the performance of a company there are many factors and points of view that must be considered when choosing a company to invest in. Considering that there are hundreds of companies to potentially invest in, there is a lot of sifting to be done. I'm not going to lie to you, it is hard work and it would be a hell of a lot easier to just follow some get rich quick scheme. I still get all jumpy and excited when reading about some new way to "Make a million dollars this year!", shortly before filing that under the "Fantasy" section of my brain.

The question still remains "Why should I invest like Warren Buffett?". Warren Buffett himself put it oh so eloquently in a fun little thought experiment , which basically boils down to this point; Warren Buffett isn't the only one that has been successful with Graham and Dodd's school of thought. Quite contrarily, many of the most successful investors in recent history have followed Graham and Dodd's methods. It seems to me that the argument isn't whether or not investing like Warren Buffett works, but whether people are willing to put in the time and effort to crack open the books and scour the stocks for the gems that won't make them rich overnight, but with patience are a sure shot in the long run. If you are interested in Warren Buffett's background, I highly recommend Warren Buffett's biography The Snowball Effect. It will explain much more clearly and accurately his history in the Graham and Dodd school and his escalation to his current "Investing God" status. Did I mention that he is worth $62 billion dollars?