Monday, May 20, 2013

Stock Picking

One question we often get is "What should I invest in?" Although we feel that we have a pretty good feel for investments, we would like to point you to a recent article written by economist N. Gregory Mankiw. While we are loathe to take investment advice from an economist (although some of our best friends are economists), Professor Mankiw makes some important points about investing, namely: 1) The market processes information quickly. The market is efficient. 2) Price moves are often inexplicable. In other words, we don't always understand what caused a stock price change, even after the fact. 3) Holding stocks is a good bet. The equity risk premium more than makes up for the riskiness of stocks over the long-term. 4) Diversification is essential. If you don't believe this, reread Chapter 11. 5)  Smart investors think globally. Why? Global investment increases diversification.