Buy and Hold Wins over the Long Term

My Money Blog had a great article about what happens when investors try to time the market. I hedge my bets by trading actively in my regular accounts, and buying/holding in my retirement accounts. Right now, actively trading is working out better than buying and holding. At the same time, my regular account balances fluctuate wildly, so I've had to develop an iron stomach. Who would have thought trading "blue chips" like General Electric (GE) and Wells Fargo (WFC) would be akin to high stakes gambling?

Bank Market Caps

Barry Ritholtz almost always has great stuff on his blog, The Big Picture. Here's one particularly interesting post, showing how much banks have declined in value:

http://www.ritholtz.com/blog/2009/02/bank-market-caps-then-now/

Oh, the lack of prudence.

Middle Class Dream: Large Cities v. Small Cities

A new study shows that smaller cities tend to provide better opportunities for the middle class:

http://www.nycfuture.org/images_pdfs/pdfs/CityOfAspiration.pdf [Warning: PDF file]

http://www.nycfuture.org/content/articles/article_view.cfm?article_id=1233&article_type=0

Credit goes to Escape Brooklyn for the links.

Police Kill 350 People Annually

The SF Chronicle recently had an interesting story about police officers killing others in the line of duty. According to the SF Chronicle, police officers kill 350 people annually and tend to get acquitted of murder charges. Full story here.

In contrast, fifty-seven (57) law enforcement officers were feloniously killed in 2007. See FBI chart here. Another chart indicates that eighty-three (83) officers were accidentally killed in 2007, mainly because of traffic accidents.

Officers appear to die at a rate of 140 per year, while killing 350 people per year. Do law enforcement officer have safer jobs than most people think?

Update: I finally researched my theory about whether police officers have relatively safe jobs. My findings are HERE.

[Note: this post has been edited since its publication.]

Helicopter Ben vs. Commander Pessimism

I am shocked by the pessimism I see all around me. GE is around 11 dollars a share. Wells Fargo is around 16 dollars a share. Both are blue chip companies that will definitely survive, especially after the recent bailout; yet, they are being priced as if bankruptcy is imminent.

The problem with Mr. Market is that he tends to swing wildly in both directions. From 2004 to 2007, he swung too high, and now, he is swinging far too low. CNBC and other media channels mimic or just forward information given to them. Their constant repetition of bad news creates a self-fulfilling loop that leads consumers to believe the sky is falling. In reality, every major country in the world is working together to ensure more money is pumped into the economy. To be bearish now is to bet against every major country in the world. Even if you believe you are smarter than every major government, once the stimulus money gets into the hands of consumers, you will also be betting against worldwide consumers. The key issue is getting the stimulus money into the hands of consumers that will spend it, i.e., the middle class and poor. The current stimulus package, while imperfect, accomplishes that task by spreading its largess across multiple and diverse fronts, from high-tech workers to construction laborers. I would have preferred that the government give tax credits of 1,500 dollars to everyone who made less than 75,000 dollars AGI in 2008 and tell banks accepting taxpayer money to lower all monthly mortgage payments by 25%, but I'm not an elected official.

Will inflation eventually occur because America is printing trillions of dollars? Yes, and inflation is terrible for consumers in ordinary times. But these are not ordinary times. in an era where housing prices--the primary source of most Americans' wealth--have deflated, inflation is not an imminent threat. Focusing on inflation now is like a commander refusing to send tanks and planes against invading ground forces because he is reserving them to fight a distant, advancing Navy--yes, fighting the Navy will be important, but allowing ground troops to invade now is unacceptable, because failing to properly combat them will result in immediate defeat.

I own and am long General Electric (GE) and Wells Fargo (WFC). By mid-2009, the market should begin swinging back to normalcy as stimulus money reaches consumers. If you can time the exact moment that Mr. Market will moderate himself, good luck to you. For those of us not blessed with prescience, we can only buy now and hold for the long term. Mr. Market will regain his optimism at some point--trillions of dollars are enough to make even the most depressed person happy, at least over the short term.

Disclaimer: under no circumstances do any statements here represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence. To summarize, I do not provide investment advice, nor do I make any claims or promises that any information here will lead to a profit, loss, or any other result.

Immigrants Add to American Economy

Thomas Friedman echoes my take on immigration here:

According to research by Vivek Wadhwa, a senior research associate at the Labor and Worklife Program at Harvard Law School, more than half of Silicon Valley start-ups were founded by immigrants over the last decade. These immigrant-founded tech companies employed 450,000 workers and had sales of $52 billion in 2005.

Being anti-immigration seems like another case of cutting your nose to spite your face--at the end of the day, you just hurt yourself. The benefits of legal immigration seem obvious in a supply-and-demand economy. Older, educated, and legal immigrants will usually be financial positives for several reasons: one, they are happy to be here, so they usually don't commit crimes; two, they're already educated, so the state doesn't have to subsidize their education or training; and three, being new residents, they cannot inherit anything or rely on family for income or assets; as a result, they must buy rent houses, cars, and other big ticket items, which helps the economy.

I've written about this issue before here.

Clark Winter agrees with Mr. Friedman and me. See here. So does Alan Greenspan. See here.

Foreign Holders of U.S. Debt

If you were wondering which foreign countries own most of our debt, here is the list:

http://www.treas.gov/tic/mfh.txt

China, as expected, is the top holder of U.S. debt.