The Ignorant Investor

There's a lot of talk on various blogs and the business media about the future direction of the S&P 500 and the rest of the stock market. This is isn't unusual. There's always lots of talk about that. Yet there seems to be more doom and gloom than usual. More economists and famous investors, Buffet among them, who seem to think that the combination of reckless fiscal policy by the government, a massive current account deficit (essentially a measurement of how much the world's capital the U.S. economy is absorbing . . . I think), and a potential bubble in the housing market is driving the U.S. economy. Since all three are unsustainable over the long term, the story goes, the economy is heading for some serious whitewater over the next year or two, which would drive down stock prices. The movements could be made more volatile by the effect of itchy trigger fingers of hedge fund and mutual fund managers who collectively control vast positions of stock market wealth. Doom, baby. Doom.

Or not. At least, that's the view of a whole bunch of other economists, Alan "Yoda" Greenspan among them, who see a few relatively minor issues that won't detract from the overall health of the economy. These folk see low inflation, manageable growth, improving conditions.

So who do we in the ignorant investing community believe?

I'm not an economist. I don't know anything about account deficits, the business cycle, capital flows, derivatives, or the Federal Reserve that isn't contained in the average 500-word article from Businessweek. When experts disagree, I don't have any reservoir of knowledge of my own to judge whose analysis is on target. So I just don't know who is right here.

Then again, it doesn't seem like anyone else does, either. The best description of the field of market prognostications is that nobody ever agrees, even though the possibilities are so limited. After all, the market can only do one of three things from here: go up, go down, and stay the same. Of those three, only the second is the kind of thing that bothers investors very much.

But if you do put money into the market now, there is the chance that the market will go down. This is a risk that is unavoidable. You can never put money into the market with the certainty that it's protected from loss. On the other hand, you can never keep money out of the market and still expect to make solid gains. So there isn't any way to avoid the occasional, or even frequent, white knuckle moment that comes from investing.

And keeping money completely out of equities isn't much of an option, either. Even when he's tame, Mr. Inflation eats away at cash piles like . . . well, you can come up with your own metaphor. But he must be beaten soundly, and the only way to do that is invest in stocks and bonds that provide the prospect of returns that outpace inflation.

There's no other way than to risk at least some capital. To hop aboard the roller coaster and accept that sometimes your knuckles are going to be white.