All Market Theories are now toast

Everything theory you every learned about how markets operate - ex. Portfolio theory - just throw it out in the garbage and set the can on fire.

Nothing right now is operating based on these 'tested' market theories. The last 10 years worth of gains in the markets have been eviscerated in the past 4 months.

They always say "Past performance does not guarantee future results." We have all become the proverbial Turkey on a Turkey Farm. For a thousand days in a Turkey's life, the Turkey is kept well fed by the farmer and is looked after by him. If you asked that Turkey what the next day will bring, the turkey will tell you that tomorrow will be like any other day. He's not going to expect the farmer who fed him well and took care of him for his entire life to off his head.

Markets are supposed to act rationally. Bullshit. Markets are behavioral, and people aren't rational. We had irrational exuberance at one time and now we have irrational pessimism. Markets are a collection of financial transactions of a common unit of trade that are transacted by people like you and me. When one person sells, someone else needs to buy. If one individual gets jittery and dumps a lot of shares, everyone else starts questioning it. The price may tick slightly downwards - "what information does that person have that we don't?" Others may become paranoid and follow suit. Some others may say, "these guys are nuts" and buy. Others will think to themselves, "ok the stock went up a little, time for me to bail now." The stock drops, some people may decide that "oh my gosh, I better cut my losses now" or "this drop is temporary, better pick up some bargains now." And so the stock swings wildly. In this market, there's a lot of this activity going on - trading based on a collection of individual whims - and it results in unprecedented volatility. Right now paranoia is winning - a lot of people couldn't handle the uncertainty and decided to bail on a whole slew of equities.

One golden rule I follow is that stocks can generally lose value faster than it can make it up. So trading on a day to day basis is generally not advised - you have to wait quite a while before you get a shot at making money. Not only that, you expose yourself to a time period of extreme volatility which the stock can lose value faster than it can make it up.

Another golden rule of mine - equities which do not pay a dividend are worthless (about 90% of firms). At some point, that company's business will cycle and it will lose enterprise value. It would have never provided you with any sort of return - in fact, all you got in exchange for your hard earned dollars is a piece of paper saying that you own a part of XYZ company that provides you with no value until you sell it to some other unfortunate individual.

I'm quite sure that the market is going to make up its losses in the next couple of years, but these kinds of events will occur and they will wipe out larges sums in portfolio values at some point in your life - whether it's 10, 20, 30 + years - we're going to face another one of these "unprecedented" events. All it takes is one catastrophic collapse in the market and your toast. And given your time frame, there's plenty of opportunities for this to occur.

After stock values recover (if they do*) and I get to the point where everything is break even or slightly higher, I'm bailing on everything equity based and no longer investing in this phantom market. Basing your retirement on a market based upon people's whims is not a strategy and it is not option.

*There have been cases in history which entire markets have collapsed and never recovered.

Change has not come...

Earlier this week, I decided at the last minute to vote for Barack Obama. Up until then I was going to vote for a third party candidate as McCain was surely out of the question - a maniac who was on a warpath with Russia is not someone who I'm keen on putting in the White House. His ding-dong choice for a running mate also sealed the deal.

The world seemed to think that Obama was going to lead to change, and so I voted for him.

I erred.

So far, I have learned that he is back tracking on many of his campaign pledges and taken several moves that have shocked and pissed me off completely.

1. He appoints as his Chief of Staff a man who served in a Foreign Military, the Israeli Military. This set me over the edge, the Iraq war was pushed for by the Israeli lobby in the US, Israel provided some of the bogus intelligence that led to the war. Rahm Emmanuel, furthermore, voted for the Iraq War resolution that Barack Obama voted against - the very one he made a cornerstone of his campaign.
2. He's going back on his pledge to withdraw troops from Iraq. What's the point of a campaign pledge if you don't make it happen?
3. He indicates that he wants to push yet another "Economic Stimulus" package. As if it isn't evident enough how the first economic stimulus ended up being a dismal failure, he now wants to spend more money in the futile belief that were going to someone jumpstart the economy. The economy is on its way back, you just have to leave it alone - prices are correcting, the cost of living has gone down - pretty soon things will reach bottom and we'll be headed back up. No government intervention is necessary.
4. The same faces of the past are coming back. His expected appointees are all former administration officials. Where's the change if the same people are going to be in charge?
5. He's already taken a hard-line stance on Iran, parrotting a popular line from the Bush Administration. Where's the diplomacy he talked about? Lord knows this was one of the few reasons I voted for him.

This was the reason why I supported Ron Paul - dimes to donuts you'd expect that man to implement what he believed in. Everyone else was pandering.