TAKING BEN STEIN’S MONEY

TAKING BEN STEIN’S MONEY

Ben Stein, deadpan “actor” and former Nixon speechwriter, used to have a television show where he was challenged by contestants to “Win Ben Stein’s Money.” In today’s (10.17.05) Yahoo Finance web page, Stein pen’s an article entitled “A Model Portfolio for Weathering Retirement”. [i]

In the article Stein combines the worst of two common investment tactics. “Buy and Hold” and formulaic portfolio diversification. Stein begins with the statement that:

[T]here have been long periods when they [stocks] have languished, as in the Great Depression and some time afterwards. But in the past 50 years their returns have been superb. While those perfect, balmy days are probably past, common stocks' returns will beat anything else even if they are only half as good as they have been in the past [ii]

HOLD, MOLD AND FOLD

Few, if any real people have a 50-year investment time frame. The stock market is currently in a Secular Bear Market where returns will generally be flat. A 3-4% current money market return will blow away the year-to-date major market indices. As of today, the Major Market Indices are down as follows:

DJIA down 4.03% Year-to-Date.

S&P 500 down 1.80% Year-to-Date.

NASDAQ down 4.85% Year-to-Date.

DIVERSIFY AND DARE TO BE MEDIOCRE

As the Author wrote in the August 2005 Newsletter,

Diversification is a mantra in the financial services industry. Talk to nearly any broker or financial planner and they will tell you to just buy and hold a basket of stocks, bonds, cash instruments and maybe throw in a few alternative investments like managed futures, REITS (Real Estate Investment Trusts) and foreign equities. Some will do well sometimes, some will do poorly sometimes. But if you hang on long enough, we can guarantee that your investments will regress to the mean.[iii]

Rather than diversify and dilute your winners with losers, select investments with the strongest relative strength against the market, other sectors, and against their peers.

These relative strength concepts were addressed at length in the Author’s August 2005 newsletter. Drop the Author an Email if you would like a copy of this free newsletter.

SORRY BEN, YOUR MONEY IS MINE IN THE DESERT OF THE REAL!

[i] http://biz.yahoo.com/special/yourlife.html
[ii] http://biz.yahoo.com/special/yourlife.html
[iii] This strategy causes me to recall a line from a Marx Brothers’ movie. The frenetic fraternals were selling a product below its cost. Groucho quipped, “If we don’t sell too many of these, we just might break even.”