Worst-Case Investing

The market is experiencing another lurching downturn after experiencing another couple of weeks of encouraging gains, and that tells you most of what you need to know about the markets. Despite the breathless reporting in the financial press, stock prices go up, and down, and up, and down more or less at random (in the short term) and consistently show incremental gains (in the longer term). Unfortunately, it’s hard to see that generally upward trend for all the short-term noise.

Of course, it’s possible that this time it’s different; that the century-long increases in share prices (plus dividend payments) are about to come to an end. We may be entering a time when all the efforts of all the people who go to work in the offices of all the publicly-traded companies (or, lately, in their homes) will lead, against all logic, to consistently declining long-term value, and the markets will go down, down, down until they finally touch bottom. Of course, long before that happens, most people will be out of work, companies in every sector will go bankrupt, and chaos will reign.

People will sometimes fear the worst, and ask what kind of investments would thrive in a worst-case economic/market scenario. And there is a ready answer for that. Your best ‘investments’ (if you could call them that) for a total breakdown of the economic system would be a hideout deep in the woods, guns and ammo to protect yourself from the hungry masses, and plenty of seeds so you could grow your own food. A very large stockpile of canned/concentrated food and access to a water supply would complete the picture, and if you believe that some kind of barter system would survive the global catastrophe, then maybe you could stockpile gold Kruegerrands.

Of course, the end of the world has been predicted more than a few times over the years, and their historical failure rate is running right at 100%. We may see a recession next year, we will certainly see more confusing fluctuation in share prices day in, day out, and the financial press will continue to think that these entirely normal market fluctuations are ‘news.’ But if history is any indication, patience in the markets, and a strong stomach for bumps in the roller coaster, will be rewarded in the end.

And if they’re not, we may have a lot more to worry about than the value of our investment portfolios.