Things You Should Worry About
During a school break a friend and I were driving home to Vegas in my 1972 Ford Pinto. Complete with an eight-track player and built in CB radio, that little green car had it all. As teenagers we didn’t worry much about make and model, we were just glad to have wheels. As we passed Nephi the car made a strange sound and then briefly shuddered. My friend asked what was wrong and I told him not to worry about it. “It has its little quirks” I said. We drove on and near Fillmore we got some more shaking but it quickly subsided. Before he could speak I said, “Don’t worry, it is a Pinto after all.”
Somewhere between Beaver and Cedar City, we heard a loud bang and the engine went completely quiet. As I coasted the smoking car the side of the road, my friend asked, “Can I start worrying now?”
Last week I advised people to not waste time worrying over things like daily stock market movements. A reader, who appreciated the advice, commented that certainly there must be some things worth worrying about and asked if I might address them in a future article. That was a fair question so I will mention a couple of items that I consider worthy of worry.
Valuations: Stock prices always move, but it is critical to know why they are moving. Valuation is ultimately based on earnings, so if earnings are starting to look bleak, then the market deserves to come down. For example, in 1999 I begged people to abandon companies like Yahoo, saying that despite its good qualities, it would take Yahoo 30 years to be worth its then $250 share price. Paying that much for a stock that was earning six cents a year per share was worth worrying about.
High Emotions: Several years ago Las Vegas was in a real estate boom that was getting out of control. I held many seminars in Nevada warning people to not get caught up in the frenzy. I remember one very wealthy Las Vegas businessman telling me, “Vegas is different. Our economy is immune to economic conditions that affect the rest of the country.” Those were truly famous last words for him. Be worried if you see a feeding frenzy in any investment market.
Economic Fundamentals: The U.S. stock market ultimately is a reflection of the U.S. Economy. If the economy begins on a downward path, the investment markets will follow. The Leading Economic Indicators are one way to track the economy as a whole. Current numbers continue to show moderate, but steady growth.
Finally, you might want to worry about your own economic situation. Do you keep your investments current? Are they appropriate for your personal situation? Do they offer enough potential growth while providing some downside protection? And most importantly, is your lifestyle consistent with your resources? In every economic disaster there is a vast difference in the outcome for those whose financial lives resemble a finely tuned automobile, versus those who look more like a Pinto.