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I listen to the Dave Ramsey show everyday – well, as much of it as I can while driving home from work.  Dave is a smart, common sense guy, and he says a ton of stuff that I agree with wholeheartedly.  You will not go wrong if you follow his advice, and I strongly urge you to listen to him (podcast available on website) and to check out his website at DaveRamsey.com.

Let me put it this way, if more people had listened to Dave and followed his advice, this current financial crisis would not have happened.  The current crisis (I keep saying “current crisis” because the government ALWAYS has some crisis – it’s the way they convince you to go along with stupid ideas that you’d normally spit on) was caused by government policies which encouraged people to borrow too much money.  Period.

Dave has always encouraged (and encouraged is too mild of term!) people to get out of debt.  All debt.  No exceptions.  And he gives great practical advice  on how to do it.  His plan works, and it will also eliminate those fights about money with your spouse.  I know from experience, because my wife and I get along much better since we started following a written budget.

Go to his site, download the podcasts, listen to him live, whatever works for you.  But you need to listen to him and follow his advice.

After having said all of that, there are two things he says with which I disagree.  This is not meant to antagonize anyone, but simply to say that I don’t think Dave is 100% right on his advice.

1. Dave is a Christian, and he encourages people to tithe literally.  10% off the top to your church.  (I’m a benevolent Atheist, who thinks that religion is one of mankind’s greatest vices.  But that’s my opinion, you are free to practice whatever faith you wish.)
2. Buy and hold investing.  (See my previous post Bye-bye to buy and hold for the basics of why I disagree with that philosophy.)

The point of this post is not to point out the area’s with which I disagree with Dave, but to talk about something he posted on his website today.  He posted a link to a report called “The Wisdom of Great Investors” which supports his long term buy and hold advice.  (I assume it’s all about buy and hold from skimming through it.  If it is what it looks like, I’ll post again and tell you why I think they are wrong.)

On a side note, I admire Dave Ramsey for “practicing what he preaches”.  The report is free, and neither he nor the company who allowed him to distribute it are making any money off of giving it away.  Dave said that he doesn’t have any relationship with the company, and I believe him.

In case it’s only on his site for a limited time, you can also read the report here.  The Wisdom of Great Investors.  (Since they’re distributing it free, I assume this is ok.  If Davis Advisors asks, I will remove this link since it is their report.)

But I’m going to read the report later and not simply tell you what I think is wrong in it, but why I think it’s wrong.  After all, if I simply state an opinion, so what?

But if I can explain the reasoning behind my opinion to you, maybe I’ll convince you that I’m right and change your attitude and behavior regarding investing.  And that will lead you to change your attitude and reasoning towards money, which will lead you to change whatever monetary theory (if any) you currently hold, and perhaps I’ll eventually convince enough people that we can change the government back to something approximating what the Founders intended it to be.

I know it’s a long shot, but I have to try.  One step at a time, I hope to get people to think rationally, and not simply instinctively react to what happens.

gk

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I posted this in a MarketWatch.com comment a bit ago and decided it was worth putting here.  This post was in response to another comment about the importance of having a long term (10 years) time horizon when investing.  I disagreed. 

Here’s the post:

So if you put $100,000 into the S&P 500 10 years ago (which is the timeframe you give) how much would it be worth today? On Jan 11th, 1999 the S&P 500 was at 1243.26. Today (10 years later) it closed at 870.26. You’d have about $70,000 left.

That’s a 30% loss over the past 10 years for “investors”!

I have read everything that Warren Buffett has written or said publicly. I read everything Ben Stein writes. I listen to Dave Ramsey daily. I understand where you’re coming from when you talk about investing vs trading. But you are living in the past.

Buy and hold only works when you’re in a bull market. Period. If you read Buffett in the late 90’s, he was right to keep billions in cash instead of “investing” in tech. He should have listened to his own advice. Because he was wrong (and lost billions of Berkshire wealth) when he bought into Citi and GE last year. I said so publicly at the time, and I’m still saying it.

I’m simply saying that buy and hold is dead. It has been dead since the peak in 2000. Those of you you disagree are down at least 30% since then, while those of us who move in and out based on long term trends are up at least 30% since 2000.

This may turn out to be a great buying opportunity – but I don’t think so. the S&P 500 earnings estimates for 2009 are still way too high at $81.80. In other words, S&P is STILL estimating that 2009 earnings will come in $16 HIGHER than 2008!

Anyone wanna bet that 2009 comes in closer to $40 than $81?

This aint rocket surgery.

gk

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