A Portfolio, Patience Important for Investors of All Ages, Says Top State Regulator
WASHINGTON (January 4, 2000) – Noting the recent euphoria over technology stocks, a leading securities regulator today urged investors of all ages not to forget the time-tested strategy of diversification and patience.
“With Nasdaq up 85% last year and technology such a big part of our lives, it’s easy to get swept away,” said Bradley Skolnik, Indiana’s Securities Commissioner and president of the North American Securities Administrators Association (NASAA)¹. “But we need to remember that the only certainty in life and the stock market is change. The best strategy is to spread risk through a portfolio of stocks and mutual funds and to be patient.”
“Stocks and sectors go in and out of fashion and favor. In the long term what the market really values are good ideas and companies that change the way we live, work and play,” Skolnik said. As examples he cited Costco, Federal Express, McDonald’s, and Disney.
Younger people and parents starting college funds for their kids can afford to be more aggressive investors than those nearing retirement, but they shouldn’t ignore the benefits of diversification, said Skolnik. “Putting all your eggs in Internet stocks is not a smart long-term strategy,” he said.
Skolnik also cautioned investors about trading too much. “I used to worry—and still worry—about brokers churning their customers’ accounts. But now I worry about online investors churning their own accounts.”
Skolnik cited academic research such as that by Terrance Odean at the University of California at Davis that suggest the more you trade the less well you do. “The hugely successful investors, like Warren Buffett, build a portfolio of quality stocks and then wait patiently. There’s another benefit to this strategy–unlike stock traders, long-term investors can sleep better at night. ”
¹ NASAA is the oldest international organization devoted to investor protection. Its membership consists of the securities administrators in the 50 states, the District of Columbia, Canada, Mexico and Puerto Rico. NASAA is the voice of securities agencies responsible for grass-roots investor protections and efficient capital formation.