Saturday, July 24, 2010

Contrarian Optimism

Last week I put more funds back into the stock market, which I started doing in May, 2010. I believe the correction is over and that there will be a rally, which hopefully will last for several months. Here are the reasons for my optimism:

  • Good earnings reports. Overall, I think the earnings and forward guidance have been very positive, showing that businesses have started recovering from the recession. For example, Intel had its best quarter ever.

  • Analysts are still skeptical of a business recovery. Surprisingly, many analysts are still bearish, believing that an economic double dip is likely. I agree there are still a lot of risks, such as Europe, job creation and housing. However, bull markets typically climb a "wall of worry."

  • Individual investors are still on the sidelines. Many pulled out of the stock market and missed the run up from March 2009 by being in "safe" investments. Their return to stocks can help fuel a rally.

  • Midterm elections are soon. The expectation is the majority party will likely lose a significant number of seats. Such a results may encourage President Obama to govern more from the center.
  • Next week, I plan to continue increasing my percentage of investments in equities. Hopefully, by being a contrarian at this time, I will be able to participate in the beginning of the next rally.

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

    This is not financial or investment advice. Please consult a professional advisor.

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    1 comment:

    ditchtheboss said...

    I think that your approach may work. Sometimes being a contrarian on the stock market works because you probably end up picking up bargains that others loose.

    All the best