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    Making Lemonade: A Bright View on Investing, on Financial Markets, and on the Economy
    Making Lemonade: A Bright View on Investing, on Financial Markets, and on the Economy
    Making Lemonade: A Bright View on Investing, on Financial Markets, and on the Economy
    Ebook141 pages1 hour

    Making Lemonade: A Bright View on Investing, on Financial Markets, and on the Economy

    By Martin Mazorra

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    About this ebook

    Over the past twenty-two years, Mr. Mazorra has helped literally hundreds of investors design and maintain their long-term portfolios, and in the process has discovered the secret to long-term investment success. And you won't find it in a financial magazine, at a seminar, or on one of the popular financial news networks. The beauty of this secret is its simplicity. It's not some groundbreaking concept or complicated strategy, in a word it's behavior. How investors behave when it comes to their money, will inevitably determine their degree of investment success.

    Inspired by the hopes, fears, dreams and aspirations of his clients, this little book is a compilation of client newsletters and newspaper articles on the subjects of investing and the economy that Mr. Mazorra has authored over the years. These brief essays, written during times of euphoria and times of despair, will illustrate for you how becoming a successful long-term investor may just be one of the easiest things you'll ever do.
    LanguageEnglish
    PublisheriUniverse
    Release dateJun 12, 2007
    ISBN9780595864300
    Making Lemonade: A Bright View on Investing, on Financial Markets, and on the Economy
    Author

    Martin Mazorra

    Martin Mazorra, a certified financial planner and chartered financial consultant, cofounded Private Wealth Advisors in Fresno, California. He is the author of Making Lemonade: A Bright View on Investing, on Financial Markets, and on the Economy. He and his wife, Judy, have five children. Visit him online at www.betweenthelines.us.

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      Book preview

      Making Lemonade - Martin Mazorra

      Copyright © 2007, 2012 Martin Mazorra

      All rights reserved. No part of this book may be used or reproduced by any means, graphic, electronic, or mechanical, including photocopying, recording, taping or by any information storage retrieval system without the written permission of the publisher except in the case of brief quotations embodied in critical articles and reviews.

      The information, ideas, and suggestions in this book are not intended to render professional advice. Before following any suggestions contained in this book, you should consult your personal accountant or other financial advisor. Neither the author nor the publisher shall be liable or responsible for any loss or damage allegedly arising as a consequence of your use or application of any information or suggestions in this book.

      iUniverse books may be ordered through booksellers or by contacting:

      iUniverse

      1663 Liberty Drive

      Bloomington, IN 47403

      www.iuniverse.com

      1-800-Authors (1-800-288-4677)

      Because of the dynamic nature of the Internet, any web addresses or links contained in this book may have changed since publication and may no longer be valid. The views expressed in this work are solely those of the author and do not necessarily reflect the views of the publisher, and the publisher hereby disclaims any responsibility for them.

      Any people depicted in stock imagery provided by Thinkstock are models, and such images are being used for illustrative purposes only.

      Certain stock imagery © Thinkstock.

      ISBN: 978-0-5954-2083-4 (sc)

      ISBN: 978-0-5958-6430-0 (e)

      iUniverse rev. date: 8/17/2012

      Acknowledgments

      I’d like to give special thanks to the clients I’ve had the pleasure of working with over the past twenty-two years. Their personal experiences, dreams, aspirations, hopes, and fears inspired what you are about to read. Thanks to my staff and associates, whose support and sincere devotion to our clients’ lives has made my experience in the financial services industry truly extraordinary. Thanks also to my parents, Len and Pauline Mazorra, for instilling in me the principle that success in life is measured by what a person gives, not what he receives. And to my boys, Nick and Ryan. I have been blessed with a truly remarkable family—words cannot describe how much they mean to me.

      Foreword

      Over the past two decades, I have had the pleasure of helping literally hundreds of investors design and maintain their investment portfolios. In the process, I have discovered what I truly believe to be the secret to long-term investment success. Unfortunately, my discovery won’t win me the next Nobel Prize in economics, a column in the Wall Street Journal, or even a guest spot on one of the financial news networks. It’s not some groundbreaking concept or strategy. Quite simply, my theory is that it’s not the things successful investors do that make them successful, it’s the things they don’t do that make them successful. By and large, successful long-term investors don’t read the Wall Street Journal or watch CNBC. They don’t panic when the stock market dips. They don’t put all their eggs in one basket. They don’t chase last year’s hottest commodity. And, perhaps most importantly, they don’t stray from their long-term investment strategy, even when the going gets tough.

      Successful investors are generally humble when it comes to their portfolios. They know what they know, and they know what they don’t know. They typically leave the day-to-day management to professionals. In their minds, they are successful when they achieve a long-term financial goal. Perhaps funding their children’s or grandchildren’s college educations, buying their dream vacation home, or retiring with a comfortable income at precisely the age they had planned. In essence, they measure their success by the extent to which they attain financial freedom, not by the rate of return they’ve earned over the years.

      Sounds easy, doesn’t it? The fact is, attaining financial freedom has been very easy for the patient investor described above. But apparently, according to a study performed by research firm Dalbar, Inc.¹, the average investor over the past twenty years has not been as patient as the investors described above. It seems the greatest challenge the average investor faces has always been dealing with his own emotions. He tends to do the things the successful investor doesn’t. The Dalbar study suggests that the average investor tends to buy and sell securities at precisely the wrong time, ultimately earning considerably less than the major market averages. According to the study, the average investor’s average annual return from 1985 to 2004 was 3.90%, while the Standard and Poor’s 500 Stock Index (a market value–weighted index of 500 of the most commonly held blue-chip stocks, considered to be a benchmark for the overall stock market) produced an 11.90% yearly gain for the same time period. How could the average investor have done so poorly compared to the overall market? It’s simply because the average investor tends to act on emotion, buying stocks or stock funds only when he perceives that everyone’s making money, typically after the market has risen for an extended period, only to sell in a blind panic after stocks suffer the inevitable pullback. And, by the way, the difference between 11.90% and 3.90% compounded annually for a dozen and a half years is a fortune.

      This book is a compilation of several years worth of client newsletters on the subjects of investing and the economy. I wrote these brief essays during times of market euphoria and times of despair. My wish for you is that this little book helps you gain what I believe is the proper perspective when it comes to your money—that the glass is always half full, and almost without exception there is a financial bright side to the events and circumstances that shape the financial universe. You’ll notice an underlying theme, particularly in the articles on investing, that long-term thinking, patience, and at times a strong stomach are the key ingredients to investment success. The newsletters are separated into three sections. Sections 1 (Bull Markets) and 2 (Bear Markets) consist of investment topics, separated by the predominant mood of the stock market at that time. Section 3 is devoted to topics related to the economy. Ahead of each essay I offer present-day commentary that often ties a past event illustrated in the newsletter to what’s occurring in today’s investment world.

      CONTENTS

      Section One  Bull Markets

      Time and Diversification

      Back to Basics

      Why Buy Bonds?

      A Dose of Reality

      Patience, the Secret to Investment Success

      Timing the Stock Market

      Beware the Bond

      Market Direction????

      When Bad News Is Good News

      Uncertainty—The Investor’s Best Friend

      Nine Thousand or Twelve Thousand?

      Section Two  Bear Markets

      Keep a Long-term Perspective

      Managing Risk—Protect the Downside

      Why Take the Risk?

      Here We Go Again!

      Stock Market Mentality

      Never Trust Your Instincts (When it Comes to Investing)

      Don’t Worry, Be Happy

      Stock Market Mentality—Part 2

      Section Three  The Economy

      The Business Cycle

      Sitting on the Fence

      The Debate over the National Debt

      The Jobs Picture

      The Truth on Trade

      Oil vs. the Stock Market

      The Falling Dollar

      Tax Cuts and Tax Revenue

      Tariffs—Are They Good for the U.S.?

      Making Lemonade

      SECTION ONE

      Bull Markets

      Time and Diversification, written just after the first quarter of 1996, touches on the advantages of dividing a long-term investment portfolio among various asset classes. The chart comparing a very safe fixed-rate investment to a very volatile but well-diversified portfolio vividly illustrates why patience and diversification are key ingredients to long-term investment success.

      Time and Diversification

      April 1996

      The first three months of 1996 have come and gone, and if you had your money in a stock mutual fund, you likely enjoyed another positive quarter. According to Morningstar Mutual Funds (www.morningstar.com), the total return for the average large cap growth fund was 5.88%, while funds that invest in non-U.S. stocks averaged 5.01%, and small company stock funds returned 5.58%.

      Corporate Bond Funds, however, posted a Q1, 1996 decline of 1.51%, according to Morningstar. The bond market began to shake on March 8, when the February non-farm jobs report showed a mammoth increase of over 700,000 new jobs, double what most economists expected. A faster-moving economy evokes fears of inflation, putting upward pressure on interest rates, which in turn causes bond prices to fall.

      Stock prices also declined on the job news (higher interest rates mean higher individual and corporate borrowing costs, creating headwinds for the economy) but quickly rebounded based on the assumption that a

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