June 30, 2003

Money making Money: Time in the Market

Lately, I have had a strange experience, the funds and stocks I hold are going up! Now, my portfolio is nowhere where it was in its heyday, and I know not to get giddy as it certainly is not out of the woods yet, but it is a better feeling than staring at losses month after month. The one salient theme that I now understand to be "real" is - money makes money. Over the past fews years I have been patiently dollar cost averaging into existing holdings and still watched value go down. I mean, I knew money makes money intelectually, but until you see a rise in your investments measuring a few thousand a month it doesn't seem real, it is still in the category of “I know it but I really don't know it" .

I guess the "wealth effect" is still terminology of the past, but I can sure see how one could become heady with enthusiasm with exponential growth happening on a month to month basis. The old adage of money making money is never truer that when the market starts to bounce back as it has recently. I firmly believe that staying fully invested, in good companies and dollar cost averaging to reduce share or unit costs is the best way of creating value. When growth occurs, it will have a huge impact on those holding the greatest value in the best investments. If you are not in the market, you will miss that bounce, that inevitable growth, but you have to suffer during the toughest bear markets to benefit, it seems.

The other piece which I find amazing, is that lowering your average cost through dollar cost averaging does not seem to make much difference when value goes down, at least to the bottom line figures on my monthly statements, but when the market starts to pick up, it starts to show in spades! Large gains are required at first to see significant growth, but with a larger capital pool, smaller percentage gains show just as much.

Great gains do not come without a price, and that price is money, time and patience.