March 28, 2024

Bucks: To Those Who Have Lost Faith in Investing

Carl Richards

Part of the investor’s dilemma is that no matter how much data we have about the past, we have no data for the future. No matter what history says about the long-term, upward trend of the stock market, we still don’t know for sure what the future will bring.

So after all the spreadsheets are put away, investing becomes a matter of faith.

This act of faith is most evident when it comes to the stock market. Assuming you’re invested in something like a basket of diversified index funds, the core question becomes this: do you still believe that stocks will continue to do better than bonds, and bonds will continue to do better than cash, just like they always have?

If you approach investing from the perspective of the historical evidence, then temporary declines, no matter how terrifying, are just part of the deal. While this doesn’t make investing easy, it does make it easier. One of the biggest risks to investing in the stock market is getting scared out of it at the wrong time. Avoiding that deadly mistake is easier if you believe that at some point things will turn around, because they always have.

Approaching investing based on the data from the past doesn’t require you to ignore the tough economic challenges we face. It just requires that we believe we will find a way through them. I have no idea how we are going to deal with the massive public debt, the problems in Europe, and everything else CNBC is throwing at us, but I do believe that we will get through it.

This reminds me of a quote from the British abolitionist, politician and historian Thomas Babington Macaulay. Keep in mind that this was written in 1830:

We cannot absolutely prove that those are in error who tell us that society has reached a turning point, that we have seen our best days. But so said all before us, and with just as much apparent reason… on what principle is it that, when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?

In some regard, investing based on the weighty evidence of history is the most prudent thing we can do. So far it has always proven to be correct. Every time someone has predicted the death of the stock market, they have been wrong. Given this record, isn’t it reasonable to assume that stocks will continue to be better than bonds, and that bonds will continue to be better than cash?

Article source: http://feeds.nytimes.com/click.phdo?i=21849041a9091b14c01fdcb02df7acf2

Japan Buys Dollars to Weaken the Surging Yen

TOKYO — Japan said Thursday that it had intervened in the foreign exchange market, selling yen and buying dollars in a bid to reverse a punishing spike in the value of the Japanese currency.

Japan has been desperate to bulwark its fragile recovery from the March earthquake and tsunami. But even as companies have raced to repair damaged factories and resume production, they have been hit by a surge in the yen that threatens their business overseas.

A strong yen hurts Japan’s export-led economy by making its cars and electronics more expensive overseas, and by eroding the value of overseas earnings when converted into yen.

But the Japanese currency, long considered a safe haven, rose as investors wary of the debt impasse in the United States fled to other currencies. Against the dollar, the yen has surged about 11 percent in the last year, and 4 percent in the last month.

The rise has accelerated an upward trend in the yen that was already squeezing Japanese exporters’ profits. Toyota, Honda and Nissan all recently blamed their sharply lower earnings in the latest quarter in part on the strong yen.

Still, the effect of moves to manipulate foreign exchange markets, especially by a single country, has often been short-lived. Japan acted alone in the intervention on Thursday morning, though Tokyo is in touch with other countries over the maneuver, Yoshihiko Noda, its finance minister, told reporters. He also said he hoped that the Bank of Japan would take steps to support the government’s move.

The Bank of Japan, which has had a sometimes troubled relationship with the government, appeared to support the intervention. The central bank said Thursday morning it would end its regular policy meeting a day early, a sign it could announce additional policy to support the government’s bid to weaken the yen.

In a note to clients, Masaaki Kanno, an economist at JPMorgan Securities, said he expected the bank to announce a further easing of Japan’s monetary policy by extending an asset purchase program that would increase the bank’s reserves, increasing liquidity and helping to dilute the value of the yen.

Article source: http://feeds.nytimes.com/click.phdo?i=c1926900b9d1ba403c627069ba84a5fd