Welcome to The Zen Investor                 August 2010


European economies are on the verge of collapse.  Unemployment in the U.S. is 25%.  Illinois, California, and Florida are going to declare bankkruptcy any day.  Obama has run the national debt up to $30 trillion dollars.  We are in the middle of an economic collapse that will make the Great Depression look tame by comparison.  The stock market is going to crash, the U.S. dollar is going to drop to zero, interest rates are going to increase to 15%, and home prices are going to fall another 50%. 

What do all these statements have in common?  None of them are true, but all of them are widely believed.  What's really happening is that the global economy is still growing, but there has been a slowdown in the rate of growth.  The housing market is still depressed, but it has moved off the bottom that it made last summer.  Unemployment is painfully high, but we're starting to see actual job growth for the first time in more than two years.  And states can't declare bankruptcy - because they are not allowed to.

The point of this exercise in extremism is that people are scared, angry, and frustrated about conditions in the world.  And rightly so.  But it's also true that things are not nearly as bad as the hysterical media would have you believe.  If you turn down the volume on your television, take a break from your favorite blog, and just look at the numbers that are being reported, you will see that the global economy is actually growing.

There are many risks to this growth, but as long as the numbers continue to show improvement, we will continue to stay invested in stocks.  We've made some adjustments to our models to reflect the fact that risks have increased, but we are far from giving up on our positive outlook for the economy and the markets.  For details about the changes to our models, click here. 

The question on everyone's mind seems to be, will the economic recovery fail, and are we going to get the dreaded 'double dip' recession?  Our answer is that the recovery is struggling and stumbling a little, and the risk of a double dip  has increased.  But it has only increased a little - from a 10% to a 15% probability. It's much more likely that the recovery will continue, but growth will be slower than expected.  

For more details about what's happening in the economy, click on the  ECONOMY tab on the main menu.  For our current outlook on stocks, bonds, and other investments, click on the MARKETS tab.


Careful With That Ax, Eugene...

When the market is going down, and the news is mostly negative, there's a natural human tendency to protect the nest egg by getting out of stocks.  We think that would be a mistake.  The thing we pay closest attention to is the business cycle, because stock prices will always reflect what's going on in the world of business.  There are many times when stock prices get out of sync with the business cycle, but eventually their relationship is restored.  Right now investors are worried about what might happen in the future, and stock prices are going down in anticipation of a double-dip recession.  But the evidence we see in the hard numbers doesn't support this pessimistic view.  There are plenty of problems and concerns, to be sure, but so far none of them are serious enough to cause the economy to slip back into recession.  Our model portfolios reflect this view, by maintaining a steady but slightly reduced exposure to stocks.


The Model Portfolios                      

The essence of our work is found in our model portfolios.  This is where we show you how to move from theory to practice.  We use three models:  Conservative, Moderately Aggressive, and Very Aggressive.  For a more detailed description of how the models work, see our MODEL PORTFOLIOS.


What To Do Next

If you are interested in learning more about how The Zen Investor can help you to think and invest for yourself, we invite you to explore our content using the navigation buttons at the top of this page.  For information about what's going on in the Economy and the Markets today, click on those buttons.  For background information on how we arrive at the conclusions we use in our model portfolios, click on Beliefs and Articles, and browse through this information.  And if you are interested in going further, click on the SERVICES button to find out what we have to offer to our subscribers.