stock price changes have the same distribution and are independent of each other, so the past movement or trend of a stock price or market cannot be used to predict its future movement.

Of course, this blockbuster idea (the book was initially written in 1973) was met with plenty of harrumphs from the Wall Street corporate types, and cheers from the anti-Wall Street types. Go figure. Either way, the most important thing you can do to save your sanity is to simply ignore the noise. Turn off the TV. Go for a walk. Stop and smell the roses. I promise everything will be waiting for you when you get back. The point is that checking your investments every half hour will do nothing but drive you insane.

Over the long run stock prices tend to go up; that’s all you need to remember. Buy and hold a diversified portfolio of stocks and bonds, and if things run similarly in the next 100 years as they have in the past 100, you’ll be up in the long run. The short run is another matter – and that’s why it’s important that you not panic. Individual stocks, of course, can take a dive and be gone forever should the company close its doors. That’s why you should avoid them like the plague. Indexes, which are a basket of stocks or bonds put together, will always be around, simply because they have the ability to add a new company once an old one has gone bankrupt.

I know it’s difficult, but try your best not to buy into the hype, the noise, the yelling, the screaming, the cajoling, the day in day out huge stream of pressure to get you to make a move. Buying or selling a security is how your broker make money. Find a good fee-based financial adviser that works with you to create a comprehensive plan for your retirement and your money in general. That’s the best advice I would give to anyone who asks what to do right now. Till next time!

Second, we all knew this day had to come eventually. The labor department released the new jobs figures for August, and lo and behold, employers eliminated 4,000 jobs in August. The New York Times article also has some very alarming quotes, including the classic doomsday prediction:

“If the economy is not headed toward recession, it is very close to one,” said Mark Zandi, chief economist at Moody’s Economy.com.

Wow. Well, Mr. Zandi sure thinks the worst is around the bend. That quote doesn’t make any sense to me though – I hope the writer merely mistook some of Mr. Zandi’s words. How can the economy be very close to a recession but at the same not not be headed towards one? Is it just going to spring up and bite me in the behind when I’m not looking? Only time will tell, I suppose.

Want another choice quote? Coming right up:

Not only did today’s report show that there was no job growth last month, but it also found that the job market was significantly weaker in June and July than the government first reported. Revisions to earlier jobs reports showed that 81,000 fewer jobs were created than initially estimated.

So estimates are wrong? Who would have thought? Me, for one. But apparently the one-two punch of the end of uninterrupted job growth and the revisions to estimates showing far fewer jobs created in previous months than first assumed led to some blood shedding on Wall Street today. The Dow Jones is off more than 222 points, Nasdaq is off 50, and the S&P is off 22. All things considered, it could have been much worse. To be honest, I’m not afraid of a stock pullback. That may have something to do with the fact that I still have 30+ years until retirement, so cheaper stocks now is the equivalent of a fire-sale for me. I’m planning on holding my investments for a very long time. Those of you with retirement looming over the next few years may have more than your fair share of nail biting moments, but the last few years should have fattened up your retirement accounts enough to lessen the blow.

All this has led many to pontificate on where the Fed will be taking the interest rate:

Investors and economists are widely expecting the Fed to lower its benchmark interest rate by a quarter-point, to 5 percent, at its next meeting. Some economists said the August employment report raises the chances of a second rate cut this year, or a half-point reduction at the next meeting. And traders in the futures market are predicting that the Fed will cut the rate to 4.5 percent by the end of the year.

Will the Interest Rate move from 5.25% to a flat 5%? Will the economy move into a recession? Stay tuned, my friends, for another edition of “As the US Economy Turns”.

UPDATE: For an in-depth report of just how bad this job report was, check out this post over at the excellent blog Mish’s Global Economic Trend Analysis: Moonbats Active Again in Massive Jobs Disaster

Most active money managers have an incredibly hard time timing the market; and those people are professionals! Whatever strategy works for you, due to the high cost of commissions I definitely recommend against trying to shift money around through buying or selling of stocks/bonds etc. Pick something and stick with it; in the long run most stocks trend higher, irregardless of intermittent market fluctuations. Read the article from Vanguard and feel free to draw your own conclusions!

I also highly recommend “Investment Strategies for the 21st Century” by Frank Armstrong. The ENTIRE text of the book is available online, and I would definitely save it to your hard drive in case the website goes down. Check out Chapter 22, which is a wonderful discussion about financial pornography that dominates most of the news media, and really only serves to hurt and not help the investing public.

So there you go, more reading then you could ever hope to do in a day. Or even a week or a month, really. Till next time!

The book has 23 chapters and weighs in a little under 300 pages; not a one-day read but maybe a couple weekends would get the job done. There are the usual sections found in all financial books such as Asset Allocation, Diversification, Saving, Index Investing, etc. Where this book really shined are the discussions of taxes as they relate to investing and retirement planning. There are two whole chapters (Taxes part 1 and 2) dedicated to the topic, more so than most of the other financial books I have read. Of course, this may sound boring beyond belief, but taxes play an important part in determining just how much of that money you saved you actually get to keep. Another great section is saving for college, which clearly goes over the various vehicles that are available to both parents and kids to help save for a college education. I hadn’t even realized the plethora of options available; I’m sure my parents wish they had known about all these options before I went to college. (Too late! And UC Santa Cruz will never be the same!)

In the end, if you have more than a little interest in the DIY approach to managing your money, this book will be a wonderful resource and a great read. It’s not made for a great rich quick persona, rather for someone who understands that saving money and prudently investing it over a lifetime can easily turn you into a millionaire! (Like me, for instance). Don’t expect witty writing and funny prose; the writers present the information very matter-of-factly. Take the time to read and re-read this book and you’ll be much better off than before you had read it – and that’s my definition of a good book about investing.

The Bogleheads’ Guide to Investing

(Yes I make a few bucks if you buy the book – help a brotha out!)

Most people think that lottery tickets are a fun, exciting way to spend a buck or two – “Maybe I’ll strike it rich” or “Why not, it’s just a dollar” are two common thoughts that run through people’s minds when purchasing that pretty ticket through that all too easy to use machine (or even from that person! But don’t worry, those days are numbered, human interface is a thing of the past). But what are your odds of winning the lottery, and how else could that money have been spent?

According to Mega Millions Web Site, your odds are 1 in 176 MILLION. Those are some rough odds, if I do say so myself. (The odds of getting killed by lightning in the US are 1 in 3 million)

If you spend $1 a day on a lottery ticket, so $365 a year, every year from say 21 to 60, you would have spent $14,235 over the course of your life on lottery tickets. Using the magic of compounded interest, if you have invested $365 a year and received returns around 8% (not an unreasonable figure over a 39 year period in the stock market), you would end up with $101,532.71 (before taxes).

So which would you rather be – $14,235 poorer while holding onto a dream, or $101,532.71 richer and ready to enjoy that money at retirement?

My friend Dan used to tell me, and I quote, “I always thought the lottery was a tax on stupid people”. Couldn’t have put it better myself.