(this post is completely off-topic. stay tuned for regularly scheduled software and technology stuff)
With the rough weeks in US markets (subprime fiasco, credit crunch.. ouch), I thought it would be a good time to talk about the only investment strategy that really works. Yes, it is easy. Yes, it is boring. Yes, it works.
Ever since I finished my Bachelor's in Economics (10 years ago), I have been consumed with following financial markets and investing any shred of money I come upon. I've had ups and downs, but I like to consider myself a pretty savvy investor. My career as a software engineer has also kept me close to finance. I worked in institutional financial services for 8 years as a developer/tester. I helped develop trading platforms, market research databases, quantitative analysis tools, buy-side/sell-side communication platforms, pre-trade negotiation messaging, etc. I like to think that I have a pretty good idea of how markets work.
So in this huge multi-billion dollar game, how is the personal investor supposed to navigate his way to profit?
Well.. actually it's quite easy.
There are 2 simple questions you must first answer:
1. What is the time-frame in which you need access to your money? (next week? next year? 10 years? retirement?)
2. How much risk and volatility are you comfortable with?
The Answer:
Asset Allocation
... not fundamental analysis, not technical analysis, not market trending, not tips from brokers and analysts ... but straight up asset allocation.
There are numerous ways to allocation your assets: Equities (Large Cap, Small Cap, Value/Growth, Domestic/International), Fixed Income, REITs, Money Instruments, etc. How you choose to allocate depends on your answers to the questions above.
All The Reading You Need:
I've read dozens of investment books. The majority of them are garbage. If you want a good recommendation, pick one of the following books to read and study it thoroughly... it's as simple as that.
They are essentially the same book. They cover nearly identical material, history, commentary, and strategy. They both highly favor the random walk theory and passive index investing. Both authors are excellent, so just pick one or both. Study these closely and you have all the information you will ever need.
and one parting tip:
If you are constantly worrying about the stock market, you are over-invested. Sell until you can sleep at night.