Investor’s Paradox    (Updated 7/1/08) Today, I will be speaking to those of you who won’t be tapping your investments until many years from now. I’m also talking to the investor who is primarily using a widely diversified portfolio of stock mutual funds to achieve long-term accumulation of wealth. As an aside, I consider individual stocks more a short-term investment. Individual stocks require much more knowledge and attention suitable to more sophisticated investors. With these introductory remarks out of the way, let me begin my discussion. Investors face a paradox. We feel good when our stock mutual funds go up and feel bad when they go down. However, since we are regularly purchasing shares in our 401(k) plans and IRAs, it is in our best interest for prices to be low today so that we can sell high many years from now. Charles Ellis seems to say it best in his book Winning the Loser’s Game. Investors are people and, like all other people, make decisions based on their emotions when a cool, rational analysis would call for a very different action. Ironically, as human beings, investors like best those upward market movements that are most adverse to their long-term interests, and most dislike those downward market movements that are, in fact, in their long-term interests. As much as we may be able to see -- in theory -- that our long-term interests are best served by lower stock prices, who among us can honestly say we don’t feel a warm glow of affection for stocks and markets that have gone up even though it means stocks are now more expensive to buy and future rates of return on our additional investments at these price levels will necessarily -- from the higher level -- be lower? Who among us would close our pocketbooks and turn away from the store that puts its most attractive wares on sale at 10, 20, even 30 percent off its recent prices? None of us would say, “I don’t want to buy these things when they’re on sale; I’ll wait until the price goes back up and buy then.” But that’s exactly how we behave toward investments. When the market drops -- putting stocks “on sale” -- we stop buying (in fact, we’ll even sell in a panic). And when the market rises, we buy more and more enthusiastically. As Jason Zweig [writer for Money Magazine] puts it, “If we shopped for stocks the way we shop for socks, we’d be better off.” We are wrong when we feel good about stocks having gone up, and we are wrong when we feel bad about stocks having gone down. A falling stock market is the necessary first step to buying low. Not an easy mind-set, for sure. But then again, who said investing was easy? Simple? Yes. Easy? No. Just remember to keep your cool when those around you are losing theirs.