Saturday, January 12, 2008

Getting Tired Of The Stock Market Volatility

Six months of stock market choppiness is starting to wear on me. As of 1/11/08, the Dow had its worst yearly start since 1991. At negative 4.96%, the Dow has lost most of its 2007 gain of 6.5%. The S&P 500 is down 4.6% and has returned all of the 2007 gain of 3.5%. It's only taken 8 trading days to reverse 2007. Unfortunately, I think the market situation will still get worse sometime in the near future and therefore, end the current bull market. Psychologically, I am getting tired of waiting for the inevitable market capitulation by investors. I wish capitulation would happen sooner than later and return to a bull market:-)

While I wish this stage would end, I think the market will continue to be volatile and choppy for an extended period, before it finally has a major decline. Here are my reasons:
  • There is still confidence that "smart" people will prevent a downturn. The market still believe that actions by the Fed, financial institutions or other government agencies will avert the decline. The trouble is that decisions by smart people in these organizations are what caused the financial issues we have today, e.g. mortgage crisis, credit crisis and looming recession. I believe the "smart" people will be able to delay but not prevent a downturn. After all, they didn't foresee the issues of today just six months ago.


  • Articles are recommending buying beat up stocks. There are a number of articles like5 hot stocks at Big Mac prices that recommend considering stocks that have had a significant decline. There aren't very articles that advocate avoiding stocks or not buying at any price. I admit, I am still tempted to bottom fish. One of my stocks, Chico's (CHS), closed at $7.05 on 1/11/08 after being in the high forties in early 2006. I'm very tempted, but am not going to buy.


  • More fear is needed. I remember at the end of 2002 very few people I knew wanted to have anything to do with stocks. Many of my colleagues had significant losses from the tech bust. At the end of 2002, I sold the remaining stocks that I had for a loss and was leery of getting back into the market. 2003 turned out to be a great year for stocks, because most people didn't want equities any more.

  • Right now, the current situation feels a lot like early 2002, with some still confident of a rebound to come. I was still actively buy stocks on the dips, which had worked well up to 2001. However, 2002 turned into a bad year for me and many other investors. While I hope I am wrong, 2008 feels a lot like 2002 to me right now. At this point, my plan to is to continue to hold what I own and not initiate any new positions.

    For more on Reflections and Musings , check back every Saturday for a new segment.

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    This is not financial or investment advice. Please consult a professional advisor.
    Copyright © 2008 Achievement Catalyst, LLC

    3 comments:

    traineeinvestor said...

    A very wealthy investor has told me several times that he prefers bear markets to bull markets for making serious money.

    The equity investments part of the balance sheet certainly makes painful reading at the moment. That said, if I have learned two things about investing in share markets:

    1. the markets are unpredictable. I may not be an advocate of random walk, but have found it very hard to guess which direction the markets will go next;

    2. the best time to buy is when there is blood on the streets (per Lord Rothschild). Whether there is blood on the streets at the moment depends on your perspective. Parts of the US economy maybe. Zimbabwe, definitely. The rest of the world looks pretty healthy to me.

    I'd have to believe things are going to get a lot worse before I would consider liquidating any of my investments.

    Kristin said...

    I agree we have not seen the worst, yet. Independent of the market, I continue to add to my holdings through DCA, but I'm not taking any new positions for awhile longer.

    I like to watch money flow to get an idea of investor sentiment - see chart
    http://thefinancialengineer.blogspot.com/2008/01/flight-to-safety-money-markets-at.html

    4Life said...

    We will probably have to go lower before we we go higher. As a dividend investor, that's not all bad. :)

    Best Wishes,
    D4L