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Every once in awhile, several topics arise that merit comment, but are either not sufficient in scope or are merely meant as “food for thought” and do not command a full column. This is one of those times. Therefore, what follows is some commentary pertaining to the market or perhaps investing that we believe are very worthy of mention. We’ll even give our take, where appropriate.
We remember back to early March, when understandably, investors were rattled and indeed, after meeting with them, less than a handful of our clients called to get them out of their investments until “things looked better.” We candidly informed them that the stock market is an anticipatory mechanism, anticipating economic activity six to nine months down the road and will move prior to receiving confirmation that the economy is recovering. Indeed, stocks moved during these dark hours and have not looked back, rising more than fifty percent on all of the major averages.
An observation that we have made several times within the body of recent columns in The Record and over various other medium, the final half of the move downward on stocks, from let’s say Dow 10,000 to where it bottomed at 6,547 on March 9th, 2009 was driven by panic. The move back up has been a recovery of that panic. Our take is that now we will have to earn the gains. The easy money has been made and now stocks will respond to the efficiency and effectiveness of the stimulus package and a pick-up in personal consumption, which represents nearly 70% of the U.S. economy.
A follow up to the preceding paragraph, this is not the popular poker game, Texas Hold’em. Investors should not go “all in” or for that matter “all out” unless their situation changes. Everything in moderation. If you are bearish, then scale back your allocation to the stock market. If you are bullish, then increase that exposure. However, make certain that your asset allocation, that is your percentage allotment to stocks, bonds and cash should conform to your long-term objectives. The further out your objectives are, generally speaking, the higher percentage an investor would allocate to stocks.
Don’t let your politics completely cloud your investment philosophy. We’re not making a political statement, but with several hundred clients, let us tell you that some disliked George W. Bush with a passion and some dislike President Barack Obama with that same level of disdain. Please keep in mind that your political bent can cloud your belief in our economy and therefore the stock and bond markets. Furthermore, should you be conservative in nature, listening to, watching and conversing with those similar in opinion to you, chances are, at this point, you are not very bullish on the stock market. However, recognize that you were also not very bullish back in March, some fifty percent ago. Bottom line, invest according to your objectives. We believe that politicians will come and go, but the spirit of America is lasting and the vibrancy of the economy is cyclical and this combination will outlast politicians, with both sides of the political aisle well-intended, but sometimes misguided.
Invest on a regular basis. Investors tend to not invest near the bottom of the market cycle, believing that by so doing are throwing good money after bad. Conversely, now we are getting a continuous stream of calls. We believe that stocks, bonds or mutual funds that invest in these areas are, for most of us, the best path in which to achieve wealth. It does not guarantee it, but, if history is any guide, is your best chance. Therefore, invest regularly, in good times and in bad, according to your objective, time horizon and tolerance to risk.
That’s it. Some issues, thoughts that we had to get off of our mind. I hope at least one of these gets you closer to your financial objectives. The BOTTOM LINE, think for yourself. Don’t be part of the herd and recognize that, if history is any guide, it is time IN the market and not timing OF the market that will ultimately pay off.