My brillant sell-everything trade (cont.) - Jan. 18, 2012

My brillant sell-everything trade (cont.) - Jan. 18, 2012:

Ties together some behavioral finance and some traditional finance:

"The truth is that while most economists assume that stock movements are largely random, there's plenty of debate about how far that randomness goes.

What should an individual investor make of that? Assume stocks are too unpredictable for you to be a profitable trader, but lower your expectations for how much you'll earn from buy-and-hold too.

You should also keep in mind that the risk of owning stocks remains real. Most investors in midcareer -- and many in retirement -- take comfort in the fact that over long stretches like 15, 20, or 30 years, stock investors have never lost money.

Boston U.'s Bodie has argued that the safety of long-run averages is a statistical illusion. As years pass, the chances of stock returns falling short of a risk-free investment get slimmer, but the potential size of your losses also gets bigger. You might be part of an unlucky generation that sees a long string of losing years."

Any article that cites both Zvi Bodie and Meir Statmen is almost guaranteed to be mentioned! Both are great finance professors/writers whom I am lucky enough to know.