Savvy investors should avoid the "herd mentality" of mutual and/or exchange-traded funds, which are, essentially, investments by default for the bulk of Americans.
It is time to avoid the "herd mentality" of investing. I urge you to think outside the box (pardon the cliche), do your homework and make specific stock selections if you want to guide your own personal investment success.
For example, the Dow dropped more than 288 points on Tuesday, March 21.
On Wednesday the world learned, from thousands of stock analysts, exactly why the market behaved as it did. However, during their reporting, not one of these pundits provided the slightest hint as to how the market might perform on Thursday.
This is how the securities industry has functioned for some time.
The investment programs to which most persons subscribe are mutual and/or exchange-traded funds, usually guided by financial counselors.
These are, essentially, investments by default for the bulk of Americans.
With interest rates at all-time lows, money market accounts, bank deposits and CDs are virtually profitless.
The selection of individual stocks and bonds entail uncertainties which only hardy souls attempt.
Real estate, with its involvement, is reserved for those of wealth and sophistication.
Except for the vulnerable who are duped into such devices as annuities, non-traded REITs, precious metals and the like, the bulk of investment money is steered into funds, mostly the index variety, where the principal activity of those doing the steering is systematically collecting a percentage of the assets in fees.
Unfortunately, little thought is given in the industry as to what mixture of funds is suitable for a particular investor.
The overriding theory is that historically the market rises, so as the saying goes, a rising tide will lift all boats.
Of course as the tide rises, the fees automatically extracted by both counselors and the funds themselves negate a good portion of the buoyancy.
Much asset appreciation of the funds is not passed on to the investor.
And as the investment roller-coaster swings and dips for reasons the hapless victims never fathom, they’ll be mollified with the standard advice: “Don’t worry about the short term. Long term appreciation will pay off, so just ride it out.”
With due deference to America’s certified financial planners, if corporate securities are to be the selected form of investment – and there are those who question this premise – let me offer a different approach.
The way to participate is through specific stock choice. This is the method I chose some years ago when I took charge of a trust portfolio, which I then operated successfully for 21¾ years.
I selected companies in healthy industries with a history of stable or increasing earnings, a generous portion regularly passed on as dividends.
I preferred companies with reasonably low price-earnings (P-E) ratios, and reviewed the portfolio every several months to dispose of those no longer meeting the criteria.
The system worked reasonably well, in that both dividend income and asset value increased handsomely over time. Though aspects of the market have changed over the years due to technology innovations,
I believe specific stock choice is still the best approach.
A final thought: For the past half-century my investment advice has come from the face in my mirror. Though at times less than astute, I’ve never doubted that face always has my best interests at heart.
A professional investor for nearly five decades, Al Jacobs holds a degree in civil engineering from Rensselaer Polytechnic Institute, a Real Estate Certificate from the University of California and a Certified Property Manager designation (CPM) from the Institute of Real Estate Management.
He organized his own investment firm in 1968 and has since specialized in development and management of real estate, and has a deep involvement in corporate securities. His written works can be found in the book "Roadway to Prosperity: A Practical Guide to Wealth Accumulation" and also in several newspapers near his hometown of Monarch Beach in Orange County, Calif. Jacobs writes a weekly column for his website.