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.

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

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