Capitalists can lose money, too, and still love Lucy

In the 18th episode of the 3rd season of I Love Lucy--the episode is named "Oil Wells"--Lucy arranges for some stock market dabbling, but she and Ricky and Fred and Ethel end up holding the bag while others walk away with the winnings.

After this week's action in the financial markets, many--probably most--of us will feel that we have ended up holding the bag and somebody else, somewhere, has the winnings.  It's worth taking a few minutes to view the end of the show before reading the rest of this article.  See it at http://www.tv.com/video/10542494/i-love-lucy--a-bunch-of-dopes.  (Lucille Ball was born 100 years ago tomorrow.)

Wealth seems to disappear faster than it can be created, whether the disappearing act is caused by a "business failure" or a "stock market crash" or a "stock market correction" or simply by some kind of accident.  But none of those events by themselves means that building a business or participating in a business or investing in the stock market is an act of futility.  We use these endeavors as tools to help us get what we want in life.  This is honorable.



But it's just too bad--isn't it?--when the act of using one of these tools causes a slip and we get whacked by it.

If you are interested in reading this to gain some ideas on how to profit from or ride out the current and future paroxysms of the stock markets, it is important to let you know that my professional qualifications do not enable me to provide financial or investment advice.  However, my adult lifetime experience of investing in stocks and bonds--including intense participation and observation since late in 2008--qualifies me to adopt the following piece of advice for myself:  Suck it up and deal with it!

Stock markets are inherently emotional because they are created by and used by humans.  Even in this day of "High Frequency Traders (HFTs)" and "algorithmic trading" and "machine trading" the human emotion factor is predominate.  HFTs are humans who have the assistance of computers, and the computers are just machines that execute trading algorithms which are built by humans.

All humans, of course, are subject to emotions, such as--for example--fear.  This past week saw fear become the dominate emotion among the so-called professional investment community--as well as some non-professional individual investors--for two primary reasons:  first, growth in the American economy is showing signs of slowing further, perhaps even stalling as the reality of the depressive effects of reduced government spending in the wake of the "debt bill's" passage sinks in; and second, there is a growing possibility of increased sovereign debt default among European nations.

The fear grew until there was panic selling in the stock markets, which eventually exhausted itself and saw some end-of-the-week stabilizing on the general hope that there will be some near-term progress on the European debt problems, and no new bogeymen will show up next week.

For those who are tempted to ask me about my personal plans with regard to investing in this environment, here's what they are:  do nothing different, and try to invest a little more time in reading some good fiction.

In my now mature years--chronologically mature, at least--my investment strategy is pretty simple:  diversify across as many different types of assets as possible; hunt and buy for yield, especially the possibility of a growing yield; choose proven quality over hyped-up potential; keep enough cash on hand to be comfortable enough that there is no loss of sleep at night over the day-to-day fluctuations in the results of this strategy; and make no major changes until and only if events show a fundamental change in the underlying thesis for making the original investment.

My strategy does not include "hedging."  Personal experience with hedging tools--such as selling short via the appropriate ETFs (exchange traded funds)--is that I usually get my face ripped off in the end, and I am tired of putting up with the subsequent plastic surgery.

Let's visit on this again next week; everything might be different by then!  In the meantime, I will just suck it up and deal with it.