Time Frames

As you probably know by now, the world is supposed to end late in 2012. It couldn’t be coming at a better time. Given the state of the economy, the continuing problems with housing and unemployment, the issues with Europe, and the upcoming Presidential elections, maybe it is time to simply hit the reset button- if there is one, and start over again. Unfortunately, previous end of the world scenarios have not worked out as planned, so we might have to hedge our bets if we do wake up to the year 2013.

I wish I could impart some wisdom as how to align your investments for whatever time we do have left. Fortunately for all of us, I gave up a long time ago trying to determine the direction different investments might take. What I do know is that if you spread things around and watch the charts, you do have pretty good odds of making some money over time.  Of course, what money you’ll make and what time frame you need is something left out of the instruction manual.

Time frames are a funny thing. If we look at last year, you might have thought that 2011 was the moment of the apocalypse. All that volatility caused more than a few souls to hit not the reset, but the panic button. But when all the bedbugs were shaken from the mattress, the S&P 500 turned in a flat line performance, down just 0.04 percentage points for the year. Maybe not the most stellar year, but certainly not doomsday either.

Another heavily watched indicator, the Dow Jones Industrial Average, actually ended the year up 5.53%. Lucky you if you were holding McDonald’s last year; it led the Dow with a gain of 30.71%. IBM and Pfizer didn’t do too badly either, gaining 22.93% and 21.19% respectively.  I’m not recommending that you rush out and buy these companies. I’m simply illustrating the large variations of returns of some of the DJIA component companies.

Bank of America on the other hand was the worst performing stock in the average, losing 58.32% for the year. With that kind of performance, maybe the Wall Street occupiers should set up a tent and welcome BOA to the 99 percent. Realistically that’s not probably going to happen anytime soon. Not after Bank of America tried to implement a $5 monthly debit card fee back in September.

That misstep was only rivaled by Netflix upping its fees and Verizon actually charging a fee for online payments.  In the case of Netflix, 800,000  subscribers bailed and with Verizon, their attempt to charge a “convenience” fee for you paying your bill lasted all of a day.  My guess is these initial decisions were made in the throes of long delayed acid flashbacks. It’s only a guess on my part, but I can’t come up with any other logical reason. For the record, I’m also applying the flashback theory to Anthony Weiner. I know he isn’t part of any average, although a couple of women I’m acquainted with claim that from what they’ve seen, he actually is a little less than average.

Now that we’ve gotten that out of the way, here’s the part where I give what little wisdom I have. I know you’re going to compare your portfolio’s performance against the indices for 2011. I do it, we all do it. Unfortunately, it doesn’t help us become the best investors. Investing doesn’t have a clearly marked starting point or finish line. There’s no trophy if we beat an index for a given year nor is your contract not renewed if you lag behind.  Time frames for a successful portfolio simply don’t have the clarity of a Kodak moment. Frankly, I’m not even sure there are Kodak moments anymore, but I do know portfolios respond differently to various time frames, and comparisons, especially short term, are relatively meaningless.

Portfolios don’t march lockstep like a parade in front of the Kremlin. They act more like a crowd at a county fair, each trying to cover the grounds, but moving at their own pace and direction. We should be more concerned as to whether our investments are constructed properly to fit our risk profiles than whether we hit the sweet spot for last year’s darling performer.

Naturally if the world is going to end sometime next December, that time frame would have a hard edge on it, but at that point it’s not going to matter. Who’s going to be around to care? You can bet it’s not going to be me.

The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors. The Standard and Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) are appropriate for you, consult your financial advisor prior to investing.  All performance referenced is historical and is no guarantee of future results.  All indices are unmanaged and cannot be invested into directly.

Last Updated on Sunday, 05 February 2012 14:26