Don't Quit Your Day Job…

The Economist posted a not-so-interesting graph relating a year’s stock market returns to it’s Chinese Zodiac sign. I would imagine that a random number generator making up returns for clusters of numbers of years since 1900 and ranking the outcomes would produce a similar outcome… but let’s play devil’s advocate and see if there is something to be said from these numbers.

Ahh, New Year, new resolutions, and new stocks for stock-picking competitions. We are a web site ostensibly about Personal Finance and investing, so I’d be remiss if I didn’t enter a few contest this year. I already discussed my picks for the Money Pros Stock Picking Competition, but this time I’m entering a 4-stock contest run by Nelson at Financial Uproar. As always, just because I picked stocks here doesn’t mean I’m telling you to buy them – so do your own due diligence!

Greece – let’s call it what it is: a beautiful country with some horrible systemic problems. If you’ve been living under or behind a human-sized rock for the last few years, Greece is in the midst of a huge, solidarity-threatening fiscal crisis related to the fact that they have a debt much larger than their GDP- in 2011 those numbers are estimated at 354.7 Billion Euros of debt, or 161.8% of their GDP. Those are some hefty ratios for a sovereign entity to be carrying around – the equivalent of $161,800 of debt for someone making $100,000.

Greek has worked itself into a situation which is quickly coming to a conclusion. Greece pretty much has two options: either (when I say Greece, I mean the people of Greece – the aforementioned referendum was canceled) accept austerity measures handed down from the rest of the European Union nations, or leave the Eurozone, default on their debt, and bring back the drachma. Neither is very enticing: the first isn’t guaranteed to work (think: it might just keep Greece on life support until the next crisis), and the second, defaulting on debt, is never a fun situation since foreign investment will quickly run dry.

When it comes to guaranteed returns, there is a list of investments perhaps as numerous as your fingers.  The most famous example is the 401(k) with an employer match.  In order to charm you into investing some of your money in the company’s 401(k) account, most employers tend to put up a bit of their own money as an incentive.  The return is immediate, guaranteed, and something that should be captured.  The bottom line is – in almost all instances you should make sacrifices elsewhere in order to receive the full employer match.

My friend sent me an article the other day which really summarized my thoughts succinctly – he sent me this piece from Evan Newmark writing at the Wall Street Journal. If you haven’t noticed the crazy action in the stock market in recent weeks and days, let me be the bearer of bad news: the major US indicators are down from their yearly peaks. You’ve probably lost some money on paper, even. Between oil in the Gulf, the Greece Drama, and even North Korea, there is a lot to be worried about. Here’s the thing – these are all known unknowns, and generally priced into the stock market already.

One of the more interesting risks you’ll face in investing in stocks (or bonds, or any security of a single company for that matter) is headline risk. Headline risk, as you may know, is the effect that news can have on a company (or sector, etc.). Often times, negative news which is only loosely related to a company can hurt it negatively. Of recent note: Tiger Woods’s “transgressions” on the companies that pay him to sponsor their products.

What should you make about the Mark Hulbert article claiming that top market timing newsletters are bullish heading into the new year? After a 27.76% increase in the value of the S&P 500 (not counting dividends) in 2009, how much further does the stock market yet have to run? And what does a bullish consensus among market timers mean, exactly?

Who is your favorite investor? Warren Buffet, Peter Lynch? Do you wish you had their insights? What if you could link your brokerage account to theirs? That exact concept is brought up in an article from the New York Times hosted on Yahoo! Finance: for a fee, your brokerage account can mirror that of an expert investor.

The Money Hacks carnival for the week hosted a DQYDJ article. Check it out!

Do psychological barriers matter to you in investing?

The Dow Jones Industrial Average is poised to climb, once again, to the psychologically important level of 10,000. 10,000 has been a memory since last October. As Brett Arends of the Wall Street Journal points out, we first crossed the 10,000 barrier over 10 years ago, and the dollar has lost 23% of its purchasing power in that time. What does Dow 10,000 mean?