The 4 Biggest Investment Myths of 2008

by Alexander Green

Pessimism about the U.S. economy and financial market is so thick right now you could cut it with a knife.
I'll be the first to admit that times are tough. But Americans have seen tough times before. And we have always prevailed.
Too many investment myths have gone unchallenged lately. Today I plan to refute them - and explain why financial markets are likely to perform much better than most investors believe in the year ahead.
Let's begin by examining the four biggest investment myths circulating right now…
Investment Myth #1: The Era of Free Markets is Over
It's true that many of the apostles of free-market economics have begged Congress for government intervention during the current credit crisis. But nobody is seriously arguing that Uncle Sam should nationalize the economy, set wages and prices, or establish production quotas.
The free market still constitutes the best means of securing prosperity over the long term. (Just ask the Chinese. Three hundred million people there have been lifted out of poverty over the past three decades.) We will find ways to make free markets work better - not abolish them.
Investment Myth #2: The United States Has Lost its Competitive Edge
The reality is the United States continues to lead the world in innovation, technology, higher education, worker training and the ability of the labor force to move from one job to another.
Three months ago, the Swiss-based World Economic Forum released its global competitiveness report and, once again, the United States topped the list. The study further noted that our strong productivity will help us "ride out business-cycle shifts and economic shocks" better than most countries.
Investment Myth #3: The United States is No Longer an Attractive Market for Investment
Yes, the Fed's move to take interest rates near zero has predictably knocked the dollar for a loop again. But that isn't deterring foreign investors. Perhaps they know that the biggest bargain of all is inexpensive assets in a cheap currency.
According to the World Bank, the United States attracted more than $2 trillion worth of foreign direct investment last year. Britain, Hong Kong and France - the next three top finishers - each registered less than half as much. The United States remains the economic engine of the world - and smart capital will continue to seek a home here.
Investment Myth #4: U.S. Financial Markets Will Take Decades to Recover
In the more than 200-year history of equity investing in the United States, stocks have never taken decades to recover. Those who argue they have always omit dividends. Dr. Jeremy Siegel of the Wharton School points out that even if you invested a regular amount in the Dow every month beginning at the market peak in 1929, within four years you would still have outperformed someone who invested the same amount each month in T-bills. (The key is regular investment and reinvested stock dividends.)
The Nikkei 225 in Japan, of course, is still down more than 70% from its peak in 1989. Could the United States be headed for the same long, deflationary spiral? That's extremely unlikely. The Japanese real estate and equity bubble was much bigger, government action there was clumsy and ineffective, and the banks were not cleaned up quickly or efficiently. Congress and the Federal Reserve are being much more proactive here.
It's true that the economy is in for a few rough quarters. Understandably, the media is focused on the bad news. We all know that hundreds of thousands of jobs have been lost. Venerable names in banking and finance are no more. American automobile manufacturers are begging Congress for a lifeline. Residential real estate and the stock and corporate bond markets have all taken it on the chin.
But there are reasons for optimism, too. Oil has plunged from $147 a barrel to less than $40. Low interest rates will ultimately make it cheaper for businesses and consumers to borrow. A cheap greenback boosts exports and makes U.S. assets inexpensive to foreign buyers. And fundamental valuations on stocks are the cheapest they've been in 17 years.
Make no mistake, 2009 is going to be a tough year for the economy. But the financial markets - always looking forward - have already discounted this and could surprise you in the year ahead.
So don't get waylaid by the gloom-and-doomers. There are always attractive investment opportunities out there and right now is no exception.
We'll be highlighting dozens of new ideas - here and in our Oxford Club Communiqué - in the weeks just ahead.
Let's buck the trend together - and look forward to a happy, healthy and prosperous New Year!
Good investing,
Alex
P.S. There's never been a better time to join The Oxford Club. In fact, members just received information on a little-known government loophole enacted in 2006 that can give you an extra $400 or more every month - starting in February. To find out more, just go here to read the full report. If you're already an Oxford Club member, you can log in here to see all of our Urgent Investor Reports..
Today's Investment U Crib Sheet
New Year's resolutions are on the minds of many as we close out 2008 and look to 2009. And while many resolutions include losing weight and living better, we'd like to recommend you consider one of our own:
Use the Four Pillars of Wealth to ensure your New Year is a profitable one.
To review, our Four Pillars are:
Pillar 1: Stick to an Asset Allocation Model Pillar 2: Adhere to a Sell Discipline Pillar 3: Understand Position-Sizing Pillar 4: Always Look to Minimize Investment Expenses and Taxes
We all want a Herculean body on a Krispy Kreme diet. But that's not going to happen. And neither is predicting the very next move of the stock market, oil, interest rates, or foreign currencies. That's why you need to have a specific strategy going into next year. And it's why The Oxford Club uses the Four Pillars.
Find out more about The Oxford Club, and its other strategies for limiting risk and increasing returns.
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Stock Market Investment Advice: The Two Most Profitable Secrets of the World's Greatest Investors
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About the Author
When Alexander Green isn't making money for Oxford Club members, or giving Investment U readers free advice, his knowledge is in high demand. He's been profiled on Forbes.com, written for Louis Rukeyser and several other leading financial publications, and was featured on the Fox News' 'The O'Reilly Factor.' The Hulbert Financial Digest has since ranked Alex's stock selections 3rd in the nation