This week’s Carnival of Personal Finance carries my post on Why Market Timing is Hard. As usual, there is a lot of other stuff there, much of it worth reading.
There were only two editor’s picks this week, a post from Bargaineering with career advice, and our friend Pinyo at Moolanomy’s post I’m Just a Blogger, Damn it!
And so he is.
Being the tremendously self-centered guy that I am, I assumed that Pinyo’s post was in response to my post the previous day that discussed his mortgage refinance post. Since he didn’t mention this blog, I didn’t feel I needed to comment further. (Note to my future victims: not acknowledging Bad Money Advice at all is your best strategy to let the whole thing blow over.) But now that Pinyo’s explanation that he is just a blogger has been highlighted as one of the two best personal finance posts of the week, it is hard for me not to say something. (Another note: submitting your non-response to the Carnival of Personal Finance lessens the chances of it going away.)
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There was an article in the Saturday New York Times that provided further evidence of something I’ve been blathering on about here. It is what I call the Frugal Lifestyle.
Just to be clear, I have nothing at all against saving money. In fact, I have only respect for those who tightly manage their limited resources to get what they and their families need and want. The same goes for those who now find themselves in difficult circumstances and need to make very hard decisions about what to do.
What I have outright contempt for are people who pretend to save money. People who, for peculiar psychological reasons that need not be explored here, enjoy depriving themselves of small things, or spending small amounts of their time in tiresome ways, because it makes them feel good to be “frugal.” My hostility is doubled for those who have taken the current economic tragedy as inspiration to adopt the Frugal Lifestyle in the same faddish way that they might otherwise take up a new hobby or start twittering.
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As would be expected from any serious economic downturn, Americans’ emotional reaction to the Great Recession is mostly a predictable collection of negative feelings: sorrow, fear, despair, regret, and so on. But there is another emotion in the mix that took me a little while to understand. It is anger. To be more specific, it is anger about losses in stocks and other financial assets.
It took a while for me to pick up on this partially because it is so alien to the
way I think about my investments. Not to go too far into unpleasant details, but I have lost a lot of money in the stock market in the past year. Really a lot. I am sad about this. I am regretful that I didn’t bail out when I could have. I even feel foolish about a few particular investments I chose. But I am not angry at anybody about it. Why would I be?
I knew what I was getting myself into. As readers of this blog know, my attitude to the stock market can be characterized as long term optimism tempered with a healthy dose of life-isn’t-always-fair. I knew that the market going down by half was not likely, but always a possibility. It had happened before. And I knew that although being a long-term investor increased my chances of a happy ending, nothing guaranteed one.
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In the past week two popular personal finance blogs have posted remarkably convoluted pieces on the relatively simple concept of mortgage interest.
Last Friday Free Money Finance posted an excerpt from The Sound Mind Investing Handbook – A Step-By-Step Guide To Managing Your Money From A Biblical Perspective 5th Ed
. (You know it’s gotta be good, it’s in its 5th edition.) The entire post could have been replaced by the following sentence:
If you have the choice between investing with a guaranteed 8% return and paying down your 6% mortgage, choose the investment because it will make you richer.
If you are thinking that my sentence is lacking because it doesn’t explain why you are richer and assumes an unlikely risk-free return, I am not unsympathetic. But my goal was only to replace the FMF post, and that post has both those flaws as well. And a few more.
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Not long after you convince yourself that buy-and-hold is the best way to invest in the stock market, you start to get doubts. Sure, owning a well diversified portfolio of stocks through thick and thin is the best way to capture the high long-term average returns that you expect, but couldn’t you do a little better? Couldn’t you sell your stocks when the market is particularly high and maybe double down when it is particularly cheap? How hard could that be?
Pretty darn hard, it turns out. Only in the clarity of hindsight are those market peaks and bottoms obvious. The towering heights that the market reached in the spring of 2000 and fall of 2007 now look like great places to exit only because we know what happened next. Yes, stocks in 2000 were by many measures more expensive than they had ever been in the past, but saying that everybody should have therefore known to sell is unfair, because stocks had been unprecedentedly expensive in each of the four or five years prior to 2000 as well.
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Carnivals | Frank Curmudgeon | 
April 14, 2009 9:45 am | 
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