It’s very tempting to quickly peek at your investments to see if they’ve gone up or down in the past twenty-four hours. The same technology that makes our lives so much easier, computer software, can drive us insane. It takes almost no effort to log into my company’s 401(k) website. When I’m at home, Quicken is only one Quick Launch icon away. At any given time, morning or night, it can take me less than 30 seconds to determine whether my tune for the day is The Gold Diggers’ Song (We’re In the Money) or Stormy Weather.

This is not necessarily a good thing. While I can usually control myself, I’ve occasionally pulled the trigger and rebalanced my 401(k) asset allocation when I shouldn’t have. These days I pay less attention to detail but I haven’t solidified my asset allocation strategy.

Susan Byrne recently shared with Money Magazine the best investment advice she ever received. Susan, the founder, chairman and chief investment officer of Westwood Management, learned while she was managing other people’s money but doing a poor job with her own assets, to keep her hands off her 401(k) except for once a year.

It’s often best to keep your eyes and hands off. Stick to your asset allocation strategy and rebalance the portfolio annually, automatically if possible.

Perhaps this is true for more than just investments, but I’m often tempted to touch things I can see. I’ve stopped looking at my investments daily, but the next step is to determine an asset allocation and stick with it. Are you tempted to change your strategy, particularly when you see your balance declining from day to day?

The smartest advice I ever got, Money Magazine

August 8 update: This is now confirmed.

This is unconfirmed but in the last few hours, two employees at TIAA-CREF have written to Consumerism Commentary to share the knowledge that workers in the the Charlotte, North Carolina office are being laid off by management at this very moment. The layoffs began on Monday and will reportedly affect 10% of the workforce.

There have been no media reports yet and no official word from the company. TIAA-CREF has been plagued with customer service problems for the last several years and changes in executive management during that time period has not solved the problems.

Many people, including public school teachers, have no choice but to invest with TIAA-CREF inside 401(k) and 403(b) plans.

The Charlotte Business Journal reported TIAA-CREF laid off 158 out of the city’s total 2,850 employees.

Mellody Hobson, the president of Ariel Investments, recently shared her favorite piece of advice to Money Magazine.

When I was 22, a friend who is very successful explained to me that no one ever got rich through earned income. “Look at all the great wealthy families,” he said. “From Carnegie to Rockefeller, it was never how much they made at work that made them wealthy – it was their investments.”

And that made me shift from thinking about a paycheck to thinking about building equity and long-term wealth. And it has helped me a lot. Instead of a raise, I ask for more stock.

This may be good advice for a senior level executive at a large corporation. Those who make the compensation decisions may have the authority to grant stock. The concept suggested by Mellody’s advice may also be helpful for those working at a small company at the onset. Then again, perhaps there is no cash available and the promise of stock is all that can be offered.

I have the feeling that most people are like me, however. They work at a large company and don’t have the option of bargaining for alternative compensation. My boss, for example, would not have the ability to simply grant me stock. I suppose that the vice president of my division could put a request through our human resources department, but in the end, it would still come from the same budget. So practically, I see no difference for the company between offering stock or cash as a raise other the simplicity of cash. I cannot see my large financial corporation seeing a stock grant as a preferable alternative to a typical raise.

Another issue I have with accepting company stock in lieu of cash is related to diversification and risk. An employee is deeply vested in the success of the company and the company’s desire to keep you. Look no further than Enron to see what happened to employees who relied too much on their own company. While the senior management at Enron lied to its employees about the company’s health, many employees suffered more during the company’s collapse. They suffered because they relied on the company for much more than just their income. In addition to salary, the employees most affected held too much company stock, particularly in 401(k)s. Enron actively encouraged its employees to buy company stock outside of retirement, as well. If your company’s stock started nosediving with imminent failure and the management decided to freeze stock so you could not sell it, how would your finances be affected?

So would you take Mellody’s advice? I think she’s right about shifting from an income-from-paycheck mentality to income-from-investments mentality, but is company stock the best path? Would you ask for more company stock in lieu of a raise?

The smartest advice I ever got, Money Magazine

Robert Shiller, a professor of economics at Yale University, shares advice about investing he learned in graduate school.

One needs to think antisocially to excel in investing, to resist the patterns of thinking that seem mysteriously to arrive simultaneously in the minds of millions of people around the world. People do not trust their own judgment but go along with the crowd, even when they can see truth.

It’s tough to take a contrary view point. First, it’s easy to believe that “a million people can’t be wrong.” The “wisdom” of crowds may be valid for some things, but usually not investing decisions. When the rest of the world is selling, it is probably a good time to buy. And vice versa.

Second, the media make it easy to get confused. mass market hype will trend in one direction, while a bevvy of financial reporters in a small segment of the media will unanimously vote in the opposite direction. Which trend should you buck?

The smartest advice I ever got, CNN Money, July 22, 2008

Bill Miller, the manager of Legg Mason Value Trust, shares some advice about building wealth.

[My father said…] “See this ‘plus .25’? That means that if you own one share of this company today, you have 25¢ more than you had yesterday.” I had come in from mowing the grass for three hours to earn 25¢. So the lesson I took was that in the stock market you can make money without doing any work… Of course, I realized only many years later that you could earn the market rate of return by doing no work, but to earn an excess rate of return certainly does require some work!

Passive income is an attractive thought. Dumping money into index funds and holding onto the investment for decades can provide results that beat most of the active fund managers. This contradicts Bill’s advice—it’s quite possible to do a large amount of work in terms of researching stocks but perform worse than the indexes.

The most passive form of income has to be that returned in the form of interest on savings accounts. Saving accounts, however, won’t provide much interest. When it comes to passive income, I’ve already stated that certain activities don’t qualify, like blogging and real estate investing, because you certainly are trading some portion of your time for that income. The Amateur Asset Allocator goes farther by outlining eight levels of passive income.

The Smartest Advice I Ever Got, CNN Money, July 22, 2008

The Dow and the S&P 500 indexes were both up 2.5% and the Nasdaq index was up 3.1% today. Is this a sign of things to come? I wouldn’t mind if it were. My 401(k) has been decimated this year. That’s a literal decimation, a reduction of 10% of its value. Based on the short history of stock market recessions in the United States, the worst may be over.

The S&P 500 passed a total decline of 20% from last October’s peak on July 9. Here is what history has to say about 20% declines, the signal of a “bear market.”

[S]oon after the onset of a bear market, the market generally has risen. One month after breaking the 20% threshold, the S&P had gained 3%, on average, during those nine bear markets. Two months later, it had risen 6%. on average. Three months later, it was up 5%, and six months later, the S&P had returned 7%. Twelve months after the initial decline, the market had surged 17%, on average…

So far, this bear market has unfolded exactly as the past nine did. On average, the nine crossed the 20% decline point nine months after beginning their decline. We’re right on schedule. The past bear markets lasted, on average, another five months…

My hunch is that the market will decline another 10% or so before it hits bottom.

History is generally a good guide, even though the human brain often has a hard time remembering history as it actually occurred. Looking at the numbers is more reliable than memory, so there may be hope for the market in store by the end of the year. By investments accounts will be thankful.

Goodbye, Bear Market?, Steven Goldberg, Kiplinger, July 14, 2008

Which rule applies to investing: the wisdom of crowds or herd mentality?

According to James Surowiecki, author of The Wisdom of Crowds, all you need in order to make good decisions—good investing decisions being a subset of all good decisions—is a diverse, independent, decentralized, and aggregated crowd to follow. Let the mob mentality, or the most intelligent in that community, do the work and blindly follow. The theory of crowd wisdom will surely lift the value of your investments.

Even if this theory is correct, it’s difficult for everyday investors to follow in practice for a number of reasons.

1. Hype masks true information. Mass media will occasionally provide information about the most diverse, independent, decentralized, and aggregated slice of the crowd, but that information is usually uninteresting to the mass audience. In a culture where the transmission of information relies on the ability to sell advertising space, ratings rule over information. The media would much rather tell a story about celebrities forced into foreclosure than one about today’s safe real estate investments.

2. Personal bias. The most extreme form of this is the penny-stock spam email you probably receive just about every day. This scam is straightforward: the perpetrator buys cheap stock in some obscure company and sends out millions of email messages. The email messages informs people who may or may not know better that the stock is guaranteed to soar and instructs them to buy now. Even a one percent response rate is enough activity to buoy the stock for the perpetrators, whi will quickly dump their holdings, leaving the fallen stock price for the suckers who bought into the scheme.

On the more reasonable side, stock brokers have their own personal interests in mind and are driven by the promise of commissions and fees. Even some journalists with close ties to financial industry have much to gain by promoting investments or insurance policies that they might not otherwise to help their friends. Investment companies have highly-paid teams of marketers to help write advice-giving articles for corporate rather than fiduciary interests.

So whose information do you trust?

3. Delay of information. Warren Buffett is one of the greatest investors of all time, there’s no doubt about that. It’s tempting to simply follow Buffett’s moves and decisions—albeit on a smaller scale—because he clearly knows what he is doing. The problem that I’ve found is that the public doesn’t hear about the details of his investing transactions until long after they’ve occurred. If you’re following Buffett’s moves three to six months after he’s made his decisions, then you’re missing the benefits that he has been enjoying. In fact, if Buffett were to buy into an investment and sell out of that same investment within a small time frame, you may even be the sucker buying Buffett’s sold shares.

One person does not make a crowd, even if it is Warren Buffett. Consider the collection of all high-level corporate executives, large university endowments, and all their investment managers. Again, you won’t hear of their investing decisions until well after these decisions have been made. It’s almost impossible to benefit from the wisdom of this particular crowd unless you’re able to follow their investments in real time.

Rather than looking for wisdom by following the perceived crowd, it may pay off to move against the mob. The contrary viewpoint may not always be right, so this particular technique of decision-making comes with its own risks.

Image credit: tboothhk

I don’t think “market timing” is a good investment strategy—in fact, it’s not a strategy at all—but it can be a worthwhile experiment if played with money you don’t mind losing.

One way to time the market is to buy low-cost exchange-traded funds (ETFs). These investments act as mutual funds—a portfolio of a number of stocks—that can be purchased through the stock market like any other stock. Using ETFs rather than individual stocks for market timing allows the investor to mitigate the risk of investing in just one company. Powershares Dynamic Banking (PJB) is one such ETF, designed to track the retail banking industry.

Are banks ready for a rebound? PJB is down 23% over the past 12 months. If it’s the right time, banking stocks might be able to provide not only a short-term gain, but a long-term gain if the market believes that this sector is deeply discounted due to all the various market conditions that have affected banks over the past year.

Some experts are saying that now is a good time to buy into the banking sector, but others believe that there will be more bad news ahead, trending stock prices further downward.

I’m investing for the long-term, but I wouldn’t mind finding bargains that might provide a significant increase over the next few years. Is banking the right industry for a fast recovery, and is now the right time?