STREET SMART SCHOOL The Library
A service of streetsmartreport.com

Library Home    Street Smart Report Home

BEING STREET SMART 

by Sy Harding

TOUGH TIMES FOR BUY & HOLD! June 27, 2008.  

The stock market has been down sharply since May 2, and down five of the last six weeks. The Dow has experienced its worst June since 1930. It has also given back all of the gains it made since September, 2006. And since October it’s down close to the minimum definition of a bear market, which is a 20% decline.

Its latest problem, which unfortunately reared its ugly head before the previous problems in the housing, financial, and consumer areas have reached bottom, is recognition that inflation is getting out of control. And that the Fed can’t risk raising interest rates to ward it off because of its concern about the slowing economy. So this week all the Fed could do was warn that it has stopped cutting interest rates to stimulate the economy, and hint that it might at some point begin raising rates (which no one believes it can do).

That sent the U.S. dollar back into its 7-year long decline, global stock markets, including the U.S. market, into steeper declines, and sent oil and gold prices soaring. The fear is that the Fed has to let inflation get even more out of control, or risk raising interest rates and sending the economy into an even more serious recession than currently threatens.

It’s been another lesson for investors (the market hands them out every few years for those who will pay attention).

The stock market is by far the best investment venue of all, providing more and better opportunities than bonds, real estate, art, collectibles, or any of the other asset classes that occasionally come into favor for awhile. But it is not a perpetual-motion money-making machine that never breaks down, as too many investors believe (for awhile).

And as I believed for awhile. I spent the first 20 years of my career buying small high-tech companies, building them into larger ones, and selling them for big profits. Without time to manage my own investments I split them between several stock-brokers and financial advisors.

It took me quite some years on the stock market roller coaster, and repeated beatings, before I realized that the market does not work as Wall Street says. (Wall Street firms know that, and do not buy and hold with their own money).

It was a costly learning experience, which led to a career change, the launching of Asset Management Research Corp. twenty-one years ago, and a determination to learn how markets really work.

But it is not easy to convince investors that ‘making money work for you’ is not a case of just putting money ‘in the market’ and expecting the market to do the work.

The market is only a place of opportunity. Standing by as an observer while profits pile up works in bull markets. Unfortunately, bull markets are only part of investing. There have been 29 bear markets over the last 100 years, or one on average of every four years, with declines of 30% to 50% for even the conservative Dow.

As I say in my current book, Beat the Market the Easy Way ! , in fact have said for the last 21 years, whether investors get the return from the market that is available over the long-term depends much more on how they handle serious corrections and bear markets, than how much they make in bull markets. This week, and this month, in fact the last 8 months, may have been a valuable lesson in that regard.

Near the March low I told you why I expected a rally to begin at any time. Near the early May top I told you why the rally was only temporary, and pointed out how easy it is to position for the downside in bear-type mutual funds and ‘inverse’ etf’s. I recommended those downside positions  to subscribers once the market’s favorable season ended and we got a technical sell signal indicating that the rally off the March low had ended.

Those downside positions have paid off nicely so far. Yet, as I’ve often said over the years, it’s not as happy a feeling making gains from the downside, as you’re always aware that most investors are suffering serious losses.

Looking ahead, it’s doubtful that the market’s correction is over. As I’ve noted several times in this column, odds are that the year’s low won’t be seen until sometime in the fall. With all the new negatives that have piled onto the already heavy load of negatives on the market’s back, it’s likely to be that long before it can look out six to nine months and anticipate improving economic conditions.

Until fall, the market’s moves are likely to depend on those short-term technical conditions and weekly patterns I point out on my morning blog. And right now, as I said on the blog this morning, the major indexes are short-term oversold, making an attempt to rally possible over coming days.

Stay tuned! We live in interesting times!

Sy Harding is President of Asset Management Research Corp., and publisher of the financial website www.StreetSmartReport.com, and the free blog www.SyHardingblog.com. He also authored the timely 1999 book Riding the Bear - How to Prosper in the Coming Bear Market, and 2007's Beating the Market the Easy Way - Seasonal Strategies that Double the Market!

Back to the Top    Library Home    Street Smart Report Home