During every correction, I encourage investors to the destructive inertia that results from trying to determine avoided: "How low can we go" and / or "How long will this take? "Investors who add to their portfolios during downturns invariably experience higher values during the next advance. Yes, Virginia, just as surely as there is a Santa Claus, there is another market ahead in our future.
Corrections are part of the normal menu "shock market", and can be brought about. By bad news or good news (Yes, that's what I meant to say.) Investors always over-analyze when prices are weak and lose their common sense when prices are high, thus perpetuating the "buy high, sell low" Wall Street line dance. Await the perfect time to jump in a falling market is as foolish a strategy as taking losses on investment grade companies and holding cash.
Repetition is good for the CPU of the brains, so forgive me for reinforcing what I said in the face of every correction since 1979 ... If you do not love corrections (and deal with them, such as visiting relatives) you really do not understand the financial markets. Not be offended, it seems like very few financial professionals want you to see it this way and, in fact, Institutional Wall Street loves it when individual investors panic in the face of uncertainty. Psstt ... uncertainty is the regulation playing field for investors, and hindsight is not welcome in the stadium.
A closer examination of the news that's fit to print (but not often enough printed) you need to make more confident in the coming years regardless of your politics.
The good news is very good: 1. Employment, jobs, and unemployment numbers are as good or better than they have in years. 2. Production numbers are stronger and trending up. 3. The "core" inflation is historically low. 4. Interest rates are historically low. 5. Orders for durable goods upward trend. 6. Operating results are strong. 7. Corporate dividend payments have increased. 8. Equity as an asset class, are considered the most reasonably valued, compared with Real Estate, Fixed Income, and Commodities. 9. Income tax rates are at historic low levels, in particular with regard to investment income. 10. Gross domestic product grows.
The bad news is not so bad, pretty much the same ole things: 1. Hurricane damage. We have actually had fewer major storms than expected. The ones we had were devastating, but the reconstruction / preparation task ahead will be good for the economy. 2. War in Iraq. There is always a war of some kind, somewhere. It's bad, but only the battlefield has changed ... and war has always been good for the economy. 3. Politics. We have an unpopular president who can not seem to get out of its own way. Who were the last held? They had no wars? 4. Wall Street / corporate scandals. Hardly new and never economy busters. 5. Energy prices. I still do not see gas lines, and maybe someone will insist on additional refining capacity. 6. Trade deficits. News would give foreigners more money so they can buy our products more. 7. High consumer debt. New? Not. 8. The threat of terrorism. A major serious problem for the past how many years? The federal regulatory agencies probably do more damage to the economy. 9. The bird flu pandemic? Maybe, but not yet, and we will really have we that bad boy pharmaceutical companies or not? 10. The Anniston / Pitt break, and neither the Yankees nor the Bosox in the World Series. Now we're talking!
Clearly, there are no new (economic) to be overly concerned about. Problems And for now, we just (and I mean just) have to do with the opportunities at hand. Low but increasing interest force fixed income prices down and yields up ... An Opportunity! Economic good news stimulates higher rates which will reduce inflationary pressures ... share prices downward trend Opportunity Two! The forces of good are intersecting with the dark side of the calendar mentality Wall Street, which sell for timely tax losses and portfolio Window Dressing ... Opportunities One and Two squared!
There is an investment Mindset solution to the problems that most people have to deal with corrections, and rallies also, for that matter. I never understood why "yard sale prices" here are so scary. What if you cut off a finger each time you get a splinter? Heal wounds, and so are the prices of high-quality effects.
In recent years, Wall Street and the media the process of investing in a competitive event of Olympic proportions and stature turned. What was once a long-term (one year is not a long-term), goal directed activity, has become a series of monthly and quarterly sprints. The direction of the market is not as important as the measures we take in anticipation of the next change of direction. Performance evaluation should rethunk (sic) in terms of cycles!
The problems and solutions, to establish understanding and retraining down. It would be impossible to cover to be here, each of these topics, but here are a few teasers. You need to focus on the application of the securities in the portfolio. You must understand and accept the normal behavior of your securities in the face of different environmental factors. You must overcome with calendar period Market Value analysis, your obsession and switch to a more manageable asset allocation approach that centers on your portfolio capital.
But for now, relax and enjoy this correction. It is your invitation to the fun and games of the next rally.
Steve Selengut
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