Tuesday, June 2, 2009

An amusing analogy

Perceiving a lot of unresolved problems burdening our economy, I currently tend to take a negative view of most investment opportunities. While not dissuaded from my doubts, I found this article entertaining. Please don't take this post as a suggestion that you load up in the equity markets. Rather, please be reminded that maintaining sound perspective requires being open to hearing opinions contrary to your own.

When you think of it, stocks are a lot like tuna fish.

By: Frank Armstrong, CFP®, AIFA®

When you think of it, stocks are a lot like tuna fish. You buy them today to use sometime in the future. You don't expect to eat it in the store, or even when you get it home that day.

Let's pretend that you, your family, and your cat eat a fair amount of tuna fish. As you know, tuna fish comes in cans and has a long shelf life. We are used to buying it in large cans for $1.50. Now one day we go to the market and see that it is on sale for $1.00 a can.

What do we do?

Do we see ourselves as impoverished because we have some cans back home on the shelf?
Do we run home, grab all our unused tuna fish and then run back to the store to sell it back?
Do we feel bad because we have lost money on our cans at home?
Do we run home and throw them all out?
Do we vow never to buy tuna fish again?
Do we organize a protest march?
Do we start a campaign in the newspaper, on our Facebook page or on Twitter?
Of course not! We buy lots of tuna fish to take advantage of the low price. We know that we will need tuna fish for a long time and that the sale offers us a great opportunity to stock up for future needs. We have made the mental jump that LOW PRICE = GOOD.

Stocks have a long shelf life too and we buy them in order to use them a long time in the future. If you are a 401(k) participant, the stocks you buy now will be there when you need them in retirement. But the average investor seems to operate on the assumption that LOW PRICE = BAD! Rather than seeing temporary low price as an opportunity to buy something he will need in the future, he wants to dump what he has.

Especially if you have a few years to go before retirement, you should be dancing in the streets. This is your chance to scoop up bargains at very attractive prices. The world markets are on sale. Buy them while they're hot!

Note: I am indebted to Nick Murray, the Advisor's Advisor, a financial professional and nationally recognized public speaker for the inspiration for this piece which I have adopted from one of his articles published many years ago. Thanks Nick for your work throughout the years.

Frank Armstrong, CFP, is the founder and president of Investor Solutions, Inc., and the author of The Informed Investor (Amacom 2002). Contact him at Frank@InvestorSolutions.com

Investor Solutions, Inc. is a fee-only SEC Registered Investment Advisor based in Coconut Grove, FL with discretionary authority over assets in excess of $400 million. The firm provides investment management services for high net worth clients, pension plans, government agencies, trusts and foundations worldwide. Their web site is located at www.InvestorSolutions.com

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