Don’t Swing For The Fences

In just one short month, the stock market as measured by the Standard & Poor’s 500 has advanced nearly twenty-two percent, closing at 825.16 this past Wednesday, up from 676.53 one month prior.

Meanwhile, investors who had been cowering in corners, wondering if the stock market would ever stop dropping are now looking for the next home run. Questions of the week include “when will General Electric get back to $20″ and “do you like Bank of America” at these levels. Much like Americans facing a recession and looking for deals at dollar stores, investors are scouring bargain bins for single digit stocks. Regarding this trend, we strongly advise caution and restraint.

This is not a commentary on the merits of any particular company. In fact, we have recently purchased shares of General Electric as well as Bank of America for clients. However, ironically, many of the same investors who were in a state of panic one month ago are those that are now looking to recoup all of the bear market losses in one fell swoop. This doesn’t make sense. We urge investors to work on developing a strategically sound investment plan, one that is appropriate for your goals and objectives and, while reviewing periodically, stick to it. Keep in mind that even the most sound investment plans have lost money over the past years. Nonetheless, balance and patience will win out over hastily made decisions to purchase the bargain “stock du jour.”

There are plenty of data to suggest that the downward trajectory of the economy has begun to level off. Just recently, we have been treated to encouraging (or at least not discouraging ) data from the housing market, the manufacturing sector and have witnessed a slight uptick in consumer sentiment. Furthermore, President Obama has begun to materially tackle the economic issues at hand without appearing like “Chicken Little” and without daily lambasting the business sector. On top of all this, mortgage rates are at or near record lows. The stock market, long a predictive barometer of future economic activity, has made a breath taking advances over the past four weeks.

Speculation can have a part in many portfolios but diversification and quality will see you through this volatility.

This entry was posted on Sunday, April 12th, 2009 at 8:00 am and is filed under Columns. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.