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The Fiscal Cliff and Long Term Investments

Posted by: David Riggs on Wednesday, November 28, 2012 at 12:00:00 am

If it bleeds it leads! That supposedly is an old adage of the news reporting profession. I donít know if hard-nosed newspaper editors ever did actually say that to fledgling reporters any place other than in a film noir movie script but it does symbolize a true human tendency. We pay attention to negatives.

Why we do it, I donít know. Disasters and crime, personal scandals of celebrities, politicians and the powerful are hot topics. Weather reporters breathlessly (and endlessly during my favorite TV programs) train their radar on every wind that shows the slightest circular motion during every thunderstorm that blows through regardless of how mild. And we watch.

Itís the same with financial news. You still occasionally see an investment person on television today bragging about how they predicated the stock market crash of 1987! Cable TV hosts, authors of magazine articles and investment newsletter writers thrive on highlighting negatives because it gets your attention and helps them sell the commercials, ads and newsletter subscriptions from which they make their living.

Today we hear about the fiscal cliff approaching with the New Year, the sovereign debt crises in Europe, the declining U.S. dollar, geo-political upheavals abounding, the greater regulatory burden being put on business, and the ups and downs of the stock markets which appear to be of greater magnitude than before. This gloomy haze of negative news and focus on the short term makes it easy to lose sight of the long range reasons to be invested in the stock market.

Most of the financial news media is geared towards short term trading otherwise, why would you need to watch every day?  If you own a local dry cleaning business or florist shop you donít pay much attention to how much you could sell your business for on any given day. Your focus is on taking care of your customers so you can increase sales and profits and continue to pay yourself an income that rises over the years. If you do that, the market price of the business will also increase over time.

For most people, investing in stocks should be the same. Stocks represent businesses that you own a piece of. Selection of good businesses that take care of their customers and have rising sales, profits, and dividends (income to the owners) should be the primary concerns. Day-to-day or quarter-to-quarter fluctuations are generally insignificant in the long run. This doesnít mean you donít keep an eye on value or change investments from time to time just try to focus more on your long term objectives.

There are many, many companies in the U.S. and elsewhere that have survived depressions, recessions, world wars, socialist governments, and other adversities while paying a cash dividend every year for 50, 60, or 100 years or more. They followed the short term ups and downs of the market but generally are worth much more today.

A business-owner approach to investing with a long term focus may make you lose interest in most of the financial news. Maybe thatís a good way to go aheadÖlive a better life.

 

This post is written by David Riggs, Vice President and Trust Investment Officer of MutualWealth Management Group.

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