Today marks my entry into the blogging world! My hope is that you will enjoy what I write on this blog and that you will find it to be of help to you or someone you know.
A few weeks ago marked the beginning of a new spring season. It began on a day when there was exactly 12 hours of sunlight and exactly 12 hours of darkness. Also on that day, the sun rose exactly due east, and it set exactly due west. It’s called the vernal equinox and it marks a time when many rejoice that the cold temperature days are behind us. A new spring season also marks a time when we bring out the baseball glove and our sports focus changes from basketball to baseball. From T-ball to Little League to high school, and on up to the major leagues, hundreds of thousands of people will enjoy another season of America’s best-loved sport.
But things just wouldn’t be the same if we didn’t have the “experts” pontificating about which team is likely to win the World Series. Doesn’t it make you wonder, how can anyone at the beginning of the season know which team is going to win the World Series? And an even more ridiculous question is who will win the World Series in 2014? Obviously, no one really knows that either!
The Major League baseball season is longer than a marathon. They play 162 games during the season, and there’s much that can go wrong during a season. Players can get hurt and have to sit the season out, weather can be a factor for games, and umpires can make bad calls!
These analogies very closely approximate the experts who predict that a stock will be a good performer in the months or years to come. You can turn on the TV or pick up a magazine or newspaper and read predictions about where particular stocks are going. The truth is, no one really knows, but it sure helps to sell more television ads and print copies – which (we must remember) is the business they are in.
There are so many things that can happen in the stock market in the short-term and the long-term that can affect the price of a stock or mutual fund in your 401(k). From 2000-2003, the market lost approximately 50% of its value. It regained nicely until 2007 when it began another downturn and lost approximately 57% of its value. These are just two time periods. Think what can happen over longer time periods – like 20 years. This is why it’s so important to be flexible and more importantly, to have a logical and organized approach to navigating the markets.
The market has recently moved to new all-time highs. Many feel that is due in large part to the Federal Reserve pumping in so much newly printed money into our economy. But whatever the reason, it is important that we not lose what we have gained. The only way to take advantage of the new all-time highs in the market is not lose the next time that it goes down!
Just like in football, the stock market is either on offense or it is on defense. When it is on offense we are trying to make money in the market. When it is on defense, we are trying to keep the market from taking money away from us. With today’s action in the market, the indicator that tells whether we are on offense or defense – flipped to defense. This indicator doesn’t tell us that we should abandon the market, but it does tell us that risk has increased and it is at times like this that we should take an inventory of our market positions and at least begin to think about taking defensive actions. This may be the early stages of the next decline, or it may simply be a pause that refreshes. In either case, it will pay to be observant, flexible, logical, and organized. In the words of the famous philosopher Yogi Berra, “You can observe a lot, just by watching.”
(Thanks to Dorsey Wright and Associates for contributions.)