Slate is running an interesting series by Henry Blodget on how to survive the stock market. Blodget, of course, is an interesting choice to write such articles; he was one of the bad guys in the recent stock market scandals, with the SEC saying he issued positive research reports on companies that he then disparaged in private e-mails. (Blodget and others settled the case without admitting or denying guilt, but agreeing to pay a large fine and be barred from working in the securities industry.)
In the series -- which so far consists of part one and part two -- the former research analyst approaches Wall Street as a private customer and has to face the assumptions that brokerages use to snag clients:
When gazing at a presentation book filled with beautiful pie charts, graphs, and tables created just for you, it is easy to forget that projected returns are just black marks on a page. Far more important are the assumptions and logic underlying them.
Those assumptions, Blogdet says, are based on a long-term stategy that is longer than most of us plan on investing.
n the financial markets, the "long term" is long. Over the past 200 years, U.S. stocks have, on average, returned approximately 10 percent a year (about 7 percent, after adjusting for inflation). For many of those 200 years, however, stocks have returned nothing—or worse. The fallow periods, moreover, have not just lasted months or years. They have lasted decades.
Go read the whole thing. It's good.