It’s been a while since I’ve written a weekly wrap or actually discussed what I’ve been doing with my portfolio, so I thought it was time to let anyone who cares know what I’ve been doing (or not been doing), and what’s been going through my mind lately.
As we all know, this week ends the fourth straight week with weekly stock market declines, capping off the year with approximately a 4-6% decline in the big-three stock indexes (DJIA: -4.0%, Nasdaq: -5.6%, S&P 500: -4.4%).
So what do I make of this recent market decline?
You’ll find all kinds of speculation as to specific causes, but I chalk it all up to investor uncertainty and performance anxiety.
No one wants to be stuck holding the bag when the market pulls back, and conversely, no one want to be left behind when it takes off. The volatility exhibited in the markets this past few weeks (especially on Friday), expresses just how anxious investors are about an economic recovery.
But that’s all it is.. fear and anxiety driving investors to “do” something.
Albeit a slow one, I really believe our economy is in a recovery phase. The market has been a tear for so long that it would be foolish and irrational to expect continued market gains without periodic pullbacks, and that’s what’s happening now, a temporary decline.
While unemployment has been the biggest cause of investor anxiety, I still believe it’s remnants of a lagging indicator and will turn around soon, but slowly. Mainstream media has a tendency to sensationalize the numbers, but rates have fallen since I first wrote about unemployment reaching a peak back in October of last year.
Other aspects of our economy showing signs of improvement. GDP has grown over the past two quarters, corporate profits have exceeded expectations, exports are rebounding, personal income is up, consumer spending has increased, consumer confidence is at a two-year high, and the ISM index has reached it’s best level since 2004. IMO, these indicators as a whole point to a recovery.
But don’t take my word for it, track the results yourself.
Concerns are sure to persist that the economy’s momentum could fade, but the way I see it, if you search the minutia hard enough to find a problem, eventually your going to find one. I’m still continuing to sit on my hands with my retirement portfolio, but I may buy some select stocks if investor anxiety continues to cause the markets to decline.
Related Links – The Vanguard Group: Economic Week in Review
Comments 3
Over simplified, dumb downed to basement levels.
1) GDP has grown – now you have to do the leg work and look into what parts of GDP grew and ask, why.
2) How did corporations beat expectations – lowered expectations, cutting the fat away straight to the bone or true organic growth.
3) As far as the rebirth of the consumer – as long as credit remains tight and jobs “creation” is non existant, ask how long can the consumer spend before exhausting his/her means.
4) You look at ISM as a positive – but what does it say as to inflation? What would that say to int rate levels?
5) The market and the economy are two very unique animals. A bull rally does not mean a strong economy. A strong economy does not mean that the market can behave bearishly.
The problem with all of the data points you provide is that you seem to be cherry picking data to fit your thesis, instead of having a thesis that represents all the facts; not just the ones you like.
This bull market is now 11 months old. Maybe it runs for another year. Maybe it retests the lows? I am not in the prediction business I do not know. I do know that markets run on fear and greed – not strength or weakness of an economy.
The economy is struggling and while a “recovery” may be at hands there is a difference between a healthy economy firing on all cylinders vs a very weak economy just trying not to implode.
Paint an entire picture for your readers. Let them figure out what’s what. Curve fitting your data reeks of confirmation bias.
Good luck.
Mike
Posted 07 Feb 2010 at 11:07 am ¶Hello “Mike”,
Don’t we all cherry pick data to support our own conclusions? I prefer to call it supporting evidence.
Personally, I always try to look at the big picture, and that requires evaluating overall economic and market data, along with investor sentiment and consumer psychology, then form my own opinions.
Like I said in my post:
the way I see it, if you search the minutia hard enough to find a problem, eventually your going to find one.
IMO, being a successful individual investor requires that one try to reasonably anticipate what’s coming and to be ahead of the ball, instead of waiting for “all” of the data to indicate something or for some “financial expert”, especially one cowardly hiding behind a veil of anonymity, to determine – and wind up losing some or all of my hard-earned savings.
If you’ve ever visited here before you’d know that I haven’t tried to impress, fool or trick anyone into believing that I’m a financial professional or any kind of financial expert. I’m just an average American trying to improve my lot in life. However, I could see how the results of my “over-simplified” analyses over the years could lead my readers to think otherwise.
I’m also not here to try to convince anyone what “they” need to do, or that I have all of the answers. The purpose of my blog is to write about the things “I” do, and to voice my own thoughts, ideas, and opinions.
I do, however, try to encourage my readers to take charge and personally manage their finances and investments themselves, conduct their own due diligence, listen to their intuitions and make their own decisions.
I also try to provide links to help them find financial and economic data to evaluate themselves. It’s up to each of my readers on their own to decide what an “entire picture” entails and to figure out “what’s what”.
I hope they all succeed.
IMO, dumbing-down things would be to make something simple, more complicated then it needs to be, or to consider market and economic analysis to be science instead of an art.
Good luck to you too.
BTW, I like the moniker you’re hiding behind. Too funny!
Posted 08 Feb 2010 at 7:57 am ¶In one month’s time since this post, all three major stock indexes are in the black again, and even more economic data is pointing towards a slow recovery. So for now, it seems as though the forecasting ability of someone who claims to be an amateur-individual investor was accurate, AGAIN.
Wow, how embarrassing for you “Mike”. Do you have any money left? Hopefully, you’re not managing other peoples’ money and only posted your comment here out of petty jealousy or a misguided feeling of superiority.
While I don’t mean this in a bad way, instead of telling me how I should write my blog, maybe you would be better served generating your own independent thought and analysis, and making your own investment decisions, instead of regurgitating what you hear or read from sources that you perceive to be credible or looking out for your best interests.
Until you’re capable of independent thought and action, here’s an idea -
Consider allocating any of the investment savings that you have left into an age/risk appropriate, low-cost index mutual fund. Then, perhaps create your own weblog in an effort to “paint the entire picture” for your own readers. Monitor your progress and grade your own performance based on listening to those “experts”.
Give it some time to see how that works out and discover for yourself if you would be better off leaving your investments in an that index fund or managing them yourself.
Oh yeah, what am I thinking? That probably won’t happen because then you’d have to lose some of your anonymity and be held accountable for your actions.
Anyway, good luck to you again “Mike”. I want to thank you for providing an example of what I try to share with to my readers.
Posted 06 Mar 2010 at 11:05 am ¶Trackbacks & Pingbacks 1
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