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In the investment world, people are constantly advising me to consider "market conditions". I'm investing mainly in mutual funds with a diverse asset allocation (bonds and stocks spread across market cap, growth vs value). I'm investing for the long term so I just need to know what the basic indicators are. Is it just the values of the major indexes such as the DJIA, S&P 500, and NASDAQ? What else should I be looking at?

Furthermore, is there an article or book that addresses this very concretely and practically for someone that can only afford a few hours a week on it?

Thanks, Chirag

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If you're investing for the long term your best strategy is going to be a buy-and-hold strategy, or even just buying a few index funds in several major asset classes and forgetting about it. Following "market conditions" is about as useful to the long term trader as checking the weather in Anchorage, Alaska every day (assuming that you don't live in Anchorage, Alaska).

Let me suggest treating yourself to a subscription to The Economist and read it once a week. You'll learn a lot more about investing, economics, and world trends, and you won't be completely in the dark if there are major structural changes in the world (like gigantic housing bubbles) that you might want to know about.

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The best advice I've heard regarding market conditions is:

Buy into fear, and sell into greed.

That is, get in when everyone is a bear and predicting economic collapse. Start selling when you hear stock picks at parties and family functions.

That said. You are better off in the long term not letting emotion (of you or the market) control your investing decisions). Use dollar cost averaging to put a fixed amount in at fixed intervals and you will most likely end up better off for it.

  • Yes, most investors forget that dollar cost averaging is the safest way to invest. As long as you invest in the right equity! – Roopesh Shenoy Dec 2 '10 at 4:54
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The very term 'market conditions' is subjective and needs context. There are 'market conditions' that favor buying (such as post crash) or market conditions that favor selling (such as the peak of a bubble).

Problem with mutual funds is you can't really pick these points yourself; because you're effectively outsourcing that to a firm.

If you're tight on time and are looking for weekly update on the economy a good solution is to identify a reputable economist (with a solid track record) and simply follow their commentary via blog or newsletter.

  • any suggestions for who to follow? – MrChrister Nov 28 '10 at 22:12
  • Yes, I highly recommend Peter Schiff. Best known for his harsh but acruate predictions on the current US recession. Google "Peter Schiff was right". He recently started a radio show at Schiffradio.com – Derrick Nov 28 '10 at 22:17
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Check out http://garynorth.com if you have $15/month. Or at least subscribe to his free newsletters (Tip of the Week, Reality Check). Well worth it.

He doesn't pay much attention to the US market indicators, except to note that people are about 20% poorer than they were 10 years ago. He looks at more basic indicators like M1, treasury rates, unemployment figures, etc.

He recommended buying gold in 2001. He changed his recommended investment portfolio most recently about a couple of years ago (!) and it's done quite well.

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