A10, Stock Trader Dude

Over the past ten years the DJIA has rarely been under 8000, but wishing the market up from here, as if 8000 is the established low seems foolish. Money magazine, Fortune magazine and news programs like the CBS evening news have financial industry people and journalists claiming that now is a good time to invest because the stock market is down substantially. That is not a reason. What about the fundamentals? If economic conditions are poor, and earnings will not improve for the foreseeable future, what’s the rush to invest? The media seems to think that because stock prices are on sale that is a reason to buy. It is not. There must be some quality filter. It reminds me of all the Phantom Menace toys that were marked down fifty percent. Maybe that seemed like a good deal to some but it wasn’t, those toys eventually wound up in the bargain bin in Toys “R” Us for 99 cents. That hurt the company’s earnings, even supposedly “sure-things” like Star Wars turned out to be crummy. DJIA 8000 may be the new ceiling, perhaps not right away, but how can all the excess be out of the market when financial journalists and the media are still saying this is a buying opportunity? I’m fine wherever the bottom will be, be it 4000 (@1994), 3000 (@1993), 2000 (@1987), 1000 (@1980), it doesn’t matter. The thing about a bear market is, it keeps finding ways to go lower, these “sale” prices continue to get reduced, in 1973 mutual funds lost thirty to forty percent, and then lost another twenty five percent or more the following year. If the media, financial journalists, and financial industry people had a keen insight they would have sold off their investments when those investments were inflated, and if they couldn’t determine that, what makes them think they have a special insight into when prices are at favorable buy levels? The most important part of the game is knowing when to sell – it avoids all the unpleasantness of buying and holding when stock prices remain depressed for long periods of time, and only those investors with significant cash reserves can effectively act when there is a viable catalyst for earnings growth and take chances when prices are at extremely low levels and due for a boost.

What can you do? For millions of Americans, a 401(k) account is the key to retirement security, even riches. Here’s how to make yours flourish. These statements were made in USA Weekend when the paper presented a retirement planning guide written by the editors of Kiplinger’s Personal Finance on September 19, 1999. The article stated that ultra-conservative guaranteed investment contracts (GICs), which offer a set return represented just fifteen percent of 401(k) assets. The article contended that stocks over the long haul were a good choice because they offered almost an eleven percent return over the past seventy-five years. What they failed to mention is that you lose much of the positive compounding effect when you have losing years. And what they didn’t consider was long periods of time, for example, sixteen years of low stock prices. If that happens, US stocks as an asset class won’t make you wealthy as the article proposed, or do much to provide for your retirement. The best part of a 401(k) is the ability to buy and sell investments without regard for tax consequences. So, if your stock holdings are above what you paid for them, and retirement is a concern, perhaps now is the time to sell your holdings and channel your funds into investments that have a guaranteed return. If you still want exposure to stocks, depending on your plan, you may have international stock investment offerings, or even the chance to load up on solid US companies with a favorable outlook that pay dividends. This way, at least you are getting paid to wait around in a stock that may take a long time to increase in value. The best part of the article is this quote, “The long-term consequences of requiring an unqualified person to act as his own chief investment officer should be obvious.” Investor education and experience are easily outmatched by proper planning to limit losses and luck.