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Russ Ramsey Says Stick to Your Investment Plan
Russ Ramsey says the stock market will steady, just as it did in the 1930s.
(Katherine Frey - Twp)
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Then he gave me a little history lesson.
"In the history of financial markets, people talk about different periods. In the Great Depression, did people make money or lose money?" he asked me.
My answer: Investors lost a ton in the Great Depression.
His answer: Only if they sold.
You would have done pretty well if you just kept investing the same amount of money at regular intervals, a technique known as dollar-cost averaging. He pointed to what would have happened if you had held all the stocks in what was then the S&P 200.
"From 1929, the peak of the crash, to 1939, over that 10 years, if you dollar-cost averaged in the S&P 200 every month, you had a 13 percent return annually," Ramsey said.
During the collapse of Lehman Brothers two weeks ago, "if you did nothing the whole week, the Dow Industrial Average was actually flat for the week."
"In investing you only need to know two things: Is the future of the company knowable, and is it important? Because if it's important people will care, and if its knowable you can value the future cash stream of the business and put an appropriate number on its value."
This next riff is why Ramsey and I could talk all day.
"Right now is investor nirvana," he said. "Lesson number one: staying power. Two, have a plan. Number three: Keep it simple, stupid. Know what you own. And four: Only borrow money when you can repay it and afford the interest."
His last point reminds me of something I read about Peter Lynch, the Fidelity investing legend who ran the Magellan Fund for years. Lynch said of investing: You either believe in the system, or you don't.
Ramsey's point is the same thing: "Bet on America. It has always worked, and I think it will."
