Skip to main content

Sound Advice: June 10, 2020

Tuna Fish
Some years ago, I had lunch with Bob Brimmer, an old friend and veteran adviser from Cape Cod.  We chatted about how people’s behavior as investors is often less rational than their behavior in most other areas where money is involved.  Bob gave an example, citing what we now refer to as the tuna fish principle.  
Let’s say a can of tuna fish normally sells for $1.50.  If the price soars to $5 a can, very few people will be buyers.  But if the price plunges to 50 cents a can, it will sell out almost immediately.
Yet with stock market investing, people do the exact opposite.  When prices drop, the last thing they are willing to do is buy, even though it’s probably the best possible time to get on board.  And (you guessed it!), as prices go higher, that is when they want to buy.  This is a sure formula for disappointment.
Now that almost two and a half months have passed since March 23rd, what seems to have been the recent market bottom, it’s easy to remember widespread investor panic prompted by the rapid onset of the pandemic.  About 11 years earlier, there was a similar wave of fear as the worldwide banking system barely escaped shutting down.
Both times, extreme fear brought extremely good value.  Wall Streeters gauge fear by what’s known as the VIX -- the volatility index -- which can be googled easily at any time. 
When fear seems to be everywhere, the VIX may spike to 40 or higher.  That’s often a good time to buy.  Baron Rothschild, an 18th-century British nobleman and member of the Rothschild banking family, is credited with saying that “the time to buy is when there’s blood in the streets.”
When investor confidence gets high, the VIX is typically somewhere in the teens.  At the moment, it’s in the mid-20s. 
If we apply the principle now, the price of tuna fish is rising and folks seem even more interested in buying.  Go figure!  Sound advice would be to stock up when the price is lower. 

N. Russell Wayne, CFP®
nrwayne@soundasset.com
www.soundasset.blogspot.com

Comments

Post a Comment

Popular posts from this blog

Sound Advice: July 8, 2020

Jobs Are Up, But So Are New Infections Through the spring months, m ost of the economic data was extremely negative, with record declines in employment and consumer spending.  The speed of that decline had no modern precedent. We are now in a recession.   The shortest recession on record occurred in 1980 and lasted just six months.  Second place goes to a seven-month recession in 1918-19, which was tied to the Spanish flu pandemic.  The big question is: When will this recession end? Given surprisingly strong data in May, April may have been the bottom of this economic cycle.  If so, it will have been the shortest recession on record.  With massive support from the Federal Reserve, the federal government, and the reopening of previously closed businesses, employment surged unexpectedly.  At the same time, pent-up demand, stimulus checks, and generous unemployment benefits led to a reacceleration of commercial activity. Still, not all is rosy.   In his recent testimo
Post a Comment
Read more

Sound Advice: December 13, 2023

What You Need To Know About Long-Term Care Insurance Long-term care insurance (LTCI) is a type of insurance that helps cover the costs of long-term care services, such as assistance with activities of daily living (ADLs) such as bathing, dressing, and eating. It can also cover the expenses associated with care in a nursing home, assisted living facility or at home by a professional caregiver. Here's what you need to know about long-term care insurance: 1. Not Covered by Health Insurance or Medicare: Long-term care services are generally not covered by health insurance or Medicare, which only provide limited coverage for skilled nursing care and rehabilitative services. Medicaid covers long-term care, but you need to meet strict income and asset requirements. 2. Costs of Long-Term Care: Long-term care can be expensive and can quickly deplete your savings. LTCI helps to cover these costs, providing financial security and ens
Post a Comment
Read more

Sound Advice: December 6, 2023

Some Suggested Financial Adjustments for Retirees Financial adjustments for retirees are crucial to ensure a comfortable and secure retirement. Here are some worthwhile financial adjustments and considerations for retirees: 1.      Create a Budget: Establish a realistic budget based on your retirement income and expenses. Categorize your spending and prioritize essential expenses such as housing, healthcare, and groceries. 2.      Emergency Fund: Maintain an emergency fund to cover unexpected expenses. Aim for at least three to six months' worth of living expenses. 3.      Healthcare Costs: Be sure to fully understand your healthcare coverage and consider supplemental insurance plans to cover gaps in Medicare. Account for potential long-term care expenses as well. 4.      Minimize Debt: Aim to pay off high-interest debt before retiring. This can significantly reduce financial stress and free up more of your retirement income. 5.      Investment Diversification: Div
Post a Comment
Read more