The Small Investor's Guide  .  .  . New ideas for small investors

Why we can't recover...  

It’s difficult to ignore the doom and gloom. We would all like to believe that we are in the midst of an astonishingly rapid recovery. But there are several major outstanding issues that are destined to prevent that. Some people talk of a Square-root shaped recovery...a "V" followed by a stable period. But rarely has the market remained stable in recent times. Much more likely, even during a stable period, is a market fluctuating up and down 10 percent, with no long-term direction.

Interest rates 

They are essentially zero now. They can go in only one direction. As they increase, the stock market will suffer because money markets will start to look better, without risk. This will pull billions out of the stock market, as investors have just seen a lost decade and are more risk-averse than ever. More are also closer to retirement, reducing risk appetites. Bond prices also naturally drop as interest rates increase.

Housing glut 

The trillions lost in home equity translates into years of lost purchasing power for millions of potential investors. As people lose money on forced sales, there will be more money coming out of the market, or refusing to go back in.


Baby boomers have just begun retiring. This is a 20-year population surge of new retirees. Many will be moving to smaller homes, further extending the housing glut. Incomes (and therefore expenditures) of this huge group will be dropping significantly, as most have lost much of their retirement in their 401k plans. Even those who still have plenty wiill now be living off of their IRAs and 401k plans, which means continuously pulling equity from their mutual funds, draining the overall market. There is no replacement for this wealth except a smaller number of replacement hires, at far lower compensation rates…good for business expense, but bad for the economy.

Figures don't lie... 

…but liars figure. All past recessions in recent memory were under 15 months long. Thus, when year-over-year results improved, we were comparing to mostly “good” times. This recession, at closer to two years long, has us comparing year-over-year corporate earnings with completely dismal values from the depths of the recession. Earnings up 20% over last year? That might be meaningful if last year was healthy. But if earnings were close to zero, percentages are completely meaningless. When EPS goes from a penny per share to ten cents, that’s an increase of 1000%, but it may be immaterial for evaluation purposes. And percentages are totally meaningless when earnings are negative, as they were for a significant part of the market. Our entire metric for understanding improvement is biased and we have no valid mathematical representation for tiny changes in revenue that push earnings from slightly negative to slightly positive.

Enjoy your "low" taxes  

Historically, income taxes at or near their lowest point, even as the government deficit is at its highest point in history. Conclusion? Taxes will have to increase or the government goes out of business. Every dollar that goes to the government to cover debt comes directly out of the economy. And the cost to service that government debt is going to skyrocket when interest rates do increase. Once again, the box is closed on all sides, with no room to move.

Too many missing jobs  

The New York Times recently reported that, even at the fastest job-adding rate in history, adding over 300,000 jobs per month it would take almost 5 years to return to pre-recession employment. And yet, we have barely crossed the threshold from continued loss of jobs. This also doesn't take into account the roughly 3% job growth that is needed just to counter population growth.

Energy costs  

The cost of gasoline and other uses of oil took a crazy climb to over $4 per gallon in July of 2008. Then the price of a barrel of oil dropped from nearly $150 to under $60. Now, we're finally seeing more steady-state pricing around $80 to $90 per barrel. People are no longer shocked by $3 per gallon gasoline. But when those prices drift back above $4 per gallon, they will be looking for ways to reduce their spending in all areas. 


The federal stimulus programs are now winding down. Cash for clunkers, home buyers incentives, and major government subsidies are beginning to spend out or already done. There’s no oomph in the recovery to absorb those losses, and we haven’t climbed back up the hill. Any “just one more time” stimulus will increase most of the problems above.



  • Why others don't want you to know about these strategies
  • How risky is timing the market?
  • Why one day can be much better than another to buy/sell mutual funds
  • Stocks, Bonds, Money markets, Real Estate. . .Today's situation
  • Feedback analysis — a lesson from Systems Engineering

DISCLAIMER: is a source of investment ideas. We make no warranty, express or implied, about the accuracy of information presented herein, strategies that you should employ, or the results you will obtain. All investors have unique situations, and are advised to seek the counsel of certified financial advisors whom they trust.

The Small Investor's Guide
New ideas for small investors