Long-term investing in today’s market a fool’s game
August 8, 2011 7:32PM
Updated: September 10, 2011 12:39AM
Dear Mr. Berko: After working on a legal case for six years and settling it to my client’s satisfaction, I received a check for $1.4 million after taxes. Could you please recommend a dozen no-load mutuals or 30 or 40 stocks with good potential for revenue and earnings growth that I can buy as long-term investments for my family and myself? I have a modest law practice. I intend to work about another 15 to 20 years, and this $1.4 million will be my retirement fund. I’m also going to pick some stocks to add to your recommendations, and I would really appreciate your advice.
— BR in Cleveland, Ohio
Dear BR: Over the last l8 months, I’ve reached an uncomfortable conclusion that the concept of a long-term investment -- holding a stock for three to seven years -- is no longer valid. I’ve also concluded that our stock market, along with the world markets, has become a consortium of big craps tables rather than a tribunal of rational investment opinions. I’ve recognized, too, that there are privileged players who are permitted to roll their own dice.
And what frightens me is that I’m right. A very close of acquaintance of 32 years who runs a multi-billion-dollar mutual fund agrees with me. He speaks of an influential cabal of high-powered, like-minded mandarins who control the supply and demand for equities and commodities. So while Greece may falter, while Portugal may fall and while Italy is treading water; while oil may exceed $100 a barrel; while U.S. unemployment is aiming at 10 percent and higher; while the housing market has foundered and commercial real estate is floundering; while our National Debt is exploding; while there are riots in the mid-east; while the Dow Jones’ Daily trading ranges can often exceed 200 to 400 points a day; while the U.S. is experiencing near-record bankruptcies ... these mandarins are colluding to push commodity prices to record highs and covertly commanding equity prices to soar.
So today, when things go lickety split from here to there and back again in the blink of an eye or the snap of a finger — keep in mind last May’s flash crash and others of less significance — you gotta be industrial-strength dumb to think long-term. Real revenue growth, real earnings growth and real dividend growth don’t mean diddly-squat any more. Value investing has become old-fashioned and disdainful, because its rewards are too slow and its gains are limited to the single- and low double-digits.
You may be able to manage and compose a portfolio with that $1.4 million. And if you can, then you are a uniquely and uncommonly skilled investor. However, I can tell you that managing money in this milieu is like trying to walk backwards underwater in a hurry. This is not a market where common sense, logic and patience prevail. This is a market in which the mandarins employ the mathematics of game theory, have behavioral psychologists on their payrolls and use supercomputers to find anomalies that create momentum.
You need a wise and knowledgeable money manager to care for your portfolio. You need an experienced professional who can navigate the land mines, who is also a mechanic that can make repairs and an investigator who can read the clues. And you should understand that I can’t give you a list of investments without knowing your risk tolerances, your goals, your personal obligations, your current income statement, your balance sheet and more.
Ask your colleagues to recommend some money managers. Interview their favorites, and then e-mail me with your thoughts. I’ll try to help you select the professional who may be best for you.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or e-mail him at firstname.lastname@example.org.