What Main Street investors did during and after the recent bear market

Main Street investors change their strategies


Glenn Salka of Fair Lawn, N.J., who near the 2009 market bottom said he was putting 100% of his free cash into "safe stuff," is still doing that. Why? "Fear. Risk. Take your pick," he says.

Lok Patel, Dubuque, Iowa: "Too many people invest on emotions rather than just investing in stable companies that consistently post profits and pay dividends."

Wendy Hunt, Cincinnati: "We are taking risks again. We've moved out of the really conservative securities to a large extent and are back with more blue chips than ever."


By Adam Shell, USA TODAY

NEW YORK — Near the stock market low last spring, with his losses nearing $200,000, Martin Blank, 67, a Florida retiree with four decades of investing experience, sold most of his stocks.

He liquidated 75% of his stock funds. He hasn't put that cash back in the market. And doesn't plan to.


That emotion-driven decision, made with his wife, Linda, nixed any chance of profiting from the 63% rally that began shortly after selling out in a state of anxiety.

But Blank has no regrets: "I have no desire to attempt to make back what I lost."

Since stocks stopped plunging in March, professional money managers and traders on Wall Street have piled back into the stock market, benefiting from the sharpest rebound in history. But, like Blank, many Main Street investors have yet to regain their stomach for the risky, uncertain and highly volatile world of stocks — leading Andre Weisbrod, CEO of Staar Financial Advisors, to note in a recent report that many buy-and-hold investors have unwittingly switched to a "buy-and-fold" strategy.

Individual investors who once embraced risk-taking have adopted a more defensive investing posture, preferring capital preservation over appreciation. Many are trimming the percentage of stocks they own and boosting holdings of safer investments, such as certificates of deposit and money market funds.

Harry Nieman, 73, a retiree from Pittsburgh, who lost 25% of his $2 million portfolio in the 2008-09 downdraft, just nibbles on individual stocks now, while stashing most of his cash in CDs and high-yielding online bank accounts. David Moran, 62, kept nearly 100% of his money in stocks during and after the 2000 tech-stock bust but sold a lot of shares before the March 2009 low. "I could never be 100% invested in stocks again," the Wayland, Mass., technical writer says.

Similarly, Glenn Salka, a 57-year-old insurance professional from Fair Lawn, N.J., who near the 2009 market bottom told USA TODAY he was putting 100% of his free cash into "safe stuff," is still employing the same conservative strategy. Asked why, Salka said, "Fear. Risk. Take your pick."

Market turbulence caused by signs that China is clamping down on credit to slow its economy, bank bashing by the White House, concerns over debt problems in some European countries and the recent pullback has investors on edge. A two-day rally this week left stocks down 1.1% in 2010.

Following the money trail highlights the shift toward defense. Since the start of 2008, when the worst financial crisis since the Great Depression began shredding paper wealth into confetti, stock funds have suffered outflows totaling $232 billion, Investment Company Institute statistics show. In contrast, fixed-income bond mutual funds have enjoyed inflows of $431 billion.

The love affair with bonds could end badly, says Brian Belski, chief investment strategist at Oppenheimer. In the 2000s, bonds outperformed stocks by a record 7.7 percentage points, on average, annually. The only other times bonds outpaced stocks for a full decade were the 1930s and 1970s. In both cases, stocks rebounded in the following decades, topping bonds by an average 10 percentage points a year.

"Due to the shock and awe of the past 10 years, most people went to the safest assets they could find," says Belski, who thinks now is a good time to move out of bonds into stocks.

Some analysts insist the growing reliance on lower-risk strategies is more than a temporary reaction to the financial tumult that has shaken investor confidence. They believe it's a lasting, long-term change. They warn that individual investors won't return to their old pattern of funneling the bulk of free cash flow into stocks.

The last time investors were hit by major back-to-back stock bear markets was 1968-70 and 1973-74. Back then, they lowered their stock holdings as a percentage of assets from a peak of 35% to 15%. They did not come back to the market in a big way until the 1982 bull market, Bank of America Merrill Lynch research shows.

Less demand for stocks, analysts say, could steal some of the cash ammunition the stock market needs to move higher.

David Rosenberg, chief investment strategist at Gluskin Sheff, cites an aging population and two severe bear markets in the past decade as reasons individual investors are shifting their money into more stable investments.

"It makes perfect sense," he says. "The median Baby Boomer is 52 and is naturally shifting toward capital preservation."

Adds Bob Cohen, a financial planner at Financial Strategies & Wealth Management, "Investors still want to make money, but they're more aware of risks."

After the bear

Interviews with close to two dozen individual investors offer a more balanced portrait of how they have adapted their investment strategies after the worst meltdown since the 1930s.

Three types of investors have emerged from the bear market rubble.

• The first is the buy-and-folder, or investors who sold near the bottom and have either stayed out of the stock market or gotten back in gingerly. 
• The second is the old-fashioned buy-and-hold investor, those who stayed the course. They rode the market all the way down and still made automatic monthly investments to their 401(k)s, enabling them to participate in the rebound. 
• The third is the so-called double-down investor. These more aggressive types had the courage to buy stocks near the market low. They were rewarded handsomely as stocks shot up off of depressed levels.

Snapshots of each type:

•Buy-and-folders. There are many investors, including those nearing retirement, who just want out of the stock market to reduce anxiety, protect assets they still have and embark on a more risk-averse path. While this group won't necessarily stay out of the market forever, they are unlikely to make huge bets on stocks.

Martin Blank fits the profile. Asked why he won't ever again bet big on stocks, he said, "I have a basic distrust of the system."

Nieman, the 73-year-old Pittsburgh native and ex-banker, admits that he's much more "timid" when it comes to stocks. A big reason relates to his age. "I'm more cautious, more vulnerable," he says. "I am more concerned about preserving my capital. Everyone once believed that investing in stocks can make you a millionaire. But the past few years, we have seen that you can lose everything."

Aging demographics are playing a key role in the shift to more income-oriented portfolios, Citigroup research shows. Citing data from the Census Bureau, Citi notes that only 14% of people 65 or older are willing to take "substantial" or "above-average" risk in an effort to reap bigger investment gains, compared with 33% of people 40 to 64.

•Buy-and-holders. While staying fully invested is painful as losses mount when stocks plunge, it pays off when the inevitable rebound unfolds.

Lok Patel, 67, an engineer at John Deere, didn't sell any stock during the market's 57% plunge. He's glad he didn't. "The market came back," he says. Even though Patel, from Dubuque, Iowa, says he was shaken by the scary market volatility, he stuck to basic investment principles, such as spreading his money around many different types of assets, investing only in good companies and funneling a set amount of money each month into stocks, a strategy called dollar-cost averaging.

"Too many people invest on emotions rather than just investing in stable companies that consistently post profits and pay dividends," Patel says, adding that stocks remain one of the few places investors can get a decent return these days.

Donna Bischoff, 59, a self-described "slow and steady" investor from New Orleans, has regained all but 0.2% of losses she suffered in the downturn — thanks to building a diversified portfolio, avoiding speculative stocks and sticking with her buy-and-hold strategy in bad times.

"I got burned in the '90s owning single stocks, and that taught me a lesson about diversification," Bischoff says, adding that she is gradually reducing her stock exposure to better reflect her lower risk tolerance as she nears 60.

•Double-downers. There is an old saying on Wall Street that the best time to buy stocks is when there's blood in the streets.

That's what Paul Davis, 48, did last spring when the Dow looked like it would tumble to zero.

In April 2009, three months after losing his job — and just a month after the market low when fear and panic remained high — Davis invested 90% of a $100,000 401(k) rollover in stocks. It paid off. The $100,000 is now worth $126,000.

Why did Davis take the risk? He had success in the past buying when fear was palpable.

"Some of the best investments I ever made were made after the 9/11 terror attacks," he said.

Michael Hartnett, chief global equity strategist at BofA Merrill Lynch, backed the strategy in a recent report. "Long-term investors should always buy 'humiliation' and sell 'hubris,' " he wrote. Stocks are now the "humiliated" asset class.

Margaret Schaefer, 70, a retired educator from Dearborn, Mich., did just that. Near the March 2009 low, she bought a basket of the most hated stocks: financials. She also bought General Motors when the automaker's future was in question. She tripled her money on both.

"CDs and money markets were paying under 2%," says Schaefer. "I was willing to take the risk."

And while the nearly 7% tumble off the recent high was a reminder that stocks can still go down in a hurry, an analysis of how stocks perform after a recession suggests that another 20% bear market decline is unlikely. Going back to 1928, the S&P 500 fell 10% or more six to 18 months after a recession in 10 of 13 cases (77% odds). But the index suffered only a 20%-plus drop five times (38%), says Ned Davis Research.

A correction, or a drop of 10%, is what Bart Ruff, 45, of Lederach, Pa., says is his buy signal.

Says Ruff, "I missed the opportunity to buy at the bottom last year, and I don't need to be overly aggressive right now. But I'll start increasing my stock holdings at around a 10% correction." Ruff had 70% of his money in stocks pre-slump, vs. 56% now.

If another brutal bear market can be ruled out, that's good news for Wendy Hunt, a 37-year-old married mom from Cincinnati. Hunt who turned ultra-defensive in March, says she is back in the stock market.

"We are taking risks again," she says. "We've moved out of the really conservative securities to a large extent and are back with more blue chips than ever."

Carmine Grigoli, chief investment strategist at Mizuho Securities USA, says that is a bullish sign. He expects more individual investors to come back to stocks and resume their normal investment patterns once it becomes clear the improvement in the economy and financial markets is here to stay.

"The more distant the memory of the financial crisis, the less frightening it becomes," he says.

http://www.usatoday.com/money/markets/2010-02-03-realinvestors03_CV_N.htm

Investing In A Bear Market

Investing In A Bear Market

We are in the 6th inning of the residential RE crisis and the 1st inning of the commercial RE crisis. Most of you are trapped in normalized bull market valuation methods (Income Statements and Cash Flow statements) which states "earnings growth and cashflow" are what you should follow. In a bear market you should be focused on the (Balance Sheets and Cash Flow Statements). Notice the switch from income statement to balance sheet. Read some of my first few blogs and you will see before the residential RE crisis started in mass I was focused only on balance sheet items (cash and debt). I was right and the worst balance sheet stocks got killed not the ones with the biggest losses.

If you actually look at how I ranked builder stocks using cash and debt and applied it to other industries you would see the same result. Why? When a bear economy is upon us credit markets tighten, loans do not get renewed, cash flow turns negative, borrowing costs go up, interest burden becomes magnified, asset prices drop, etc.....

Wall Street can't value stocks as easily when the future is uncertain and earnings go negative or are falling. Bear markets are about surviving and the companies that thrive DURING AND AFTER a bear market are the ones with the best balance sheets buying assets on the cheap. They are also the companies that have the cash to continue to invest in future product while their competitors are trying to stay alive vs. thinking and investing in future operational profit.

Be like the best companies. Stop listening to doom and gloomers, raise cash, invest in yourself, work twice as hard, stay focused and push forward doing whatever you have to in order to make money. Invest it wisely. You may not make as much today, but deflation pushed all your consumer good prices down too. Everything is on sale even at the Chicken Ranch.

http://kolkalamar.blogspot.com/2010/01/investing-in-bear-market.html

****Bull and Bear Market Strategies - Damn Bloody Good Gems!

Bull and Bear Market Strategies
The stock market often falls under the conditions of the so called bull and bear markets. Intelligent investors are well familiar with the conditions of both and know exactly what to do.

The names of the two market conditions are used in order to imply the effect that these markets may have on the value of your stocks.

The stock market hides its risks in terms of devaluating your stocks when the prices are down. However, an educated investor should be familiar with the difference between a decline in the market and a general problem with the stocks.

There are many examples which show that even under the conditions of a bear market some types of stocks perform well. The same is true under the conditions of a bull market. On the other hand, some stocks do really suffer from such extraordinary market conditions.

Why is that? The major reason for this is that stocks don't respond equally to the rises and falls of the market.

If you have done an educated investment that was based on thorough preliminary analysis you will be in an advantageous position relative to an investor that has invested in stocks just like that.

The difference between a trader and an investor is that the latter invests in a particular company stock because he likes the company and its activities. S/he is well informed and attached to the company. That is why in bad market conditions the investor will be able to tell whether the decreasing price is in accordance to the decreasing market trend or there is a problem within the company that drives the price down.

What to Do?
Under a down market you have several options.

• One of them is to sell immediately in order to minimize your losses.
• Another option is to let the market work its way through the problem with no action from your side.
• A third option is to benefit from the stock decline and add some more to your portfolio. But, this should be done only if you don't perceive that there is something wrong with the company that has led to the stock decline.

A bull market may make your stock's price increase, from which you can benefit in one way or another. However, the possibility of your stock becoming too costly always exists since after the up a down in the price may follow, which may be of an extreme speed.

So, under bull market conditions you can do one of the following in order to counteract the potentially negative effects.

• First of all, you can sell a part of the shares and use the money to repurchase the stock when its price falls again.
• Secondly, you can leave the market work its way through the imbalance with no action from your side.
• Thirdly, you can take advantage of the high prices and sell the stocks for a profit.

Never forget that a market correction will follow that may push the price of your stock below its initial level.

A useful strategy to counteract the negative effects of a bull market is to sell a portion of your stocks at the current bull market price, which will be greatly higher than the one at which you have purchased the stock. After the market correction is at place you can use the money you have acquired from the bull market sale to purchase shares at the current lower price. As a result you will have more stocks than you used to have before the bull market. You have not only avoided losses but also have reduced your average cost per share.

Final Piece of Advice
Never forget that it is important to base your decisions on knowledge not on feelings. This means that being educated about the company and the industry from which your stocks come from, the market conditions under which you operate will be of small importance to you.

http://www.stock-market-investors.com/stock-strategies-and-systems/bull-and-bear-market-strategies.html

****Be a Better Investor

Be a Better Investor
Sponsored by
by Bob Frick
Thursday, October 8, 2009

Outsmart your emotions, cut your fees, keep it simple -- and reap higher returns.

Damn, it happened again. Ten years after the internet bubble ballooned, then burst, we're left to pick up our shattered portfolios from another cycle of hope, anxiety and regret. To make matters worse, our own actions added insult to the injury inflicted by the catastrophic bear market that ended last March.

By buying high and selling low, mutual fund investors, for instance, lost $42 billion more than they should have during the 12-month period that ended last May, estimates The Hulbert Financial Digest. (In a similar vein, columnist Russel Kinnel tells us that the typical investor earns far less than funds' reported returns.)

How could this have happened? The simple answer is that emotion, not logic, usually rules our investing habits. In many ways we're predisposed not just to buy high and sell low, but to cling to losing investments we should sell, ignore threats to our wealth and follow the investing herd off a cliff again and again.

These tendencies are now well documented in the burgeoning fields of investor psychology and behavioral finance. Scholars in both disciplines are arriving at a new understanding of how humans make decisions. For instance, in the bestseller Nudge: Improving Decisions About Health, Wealth and Happiness, authors Richard Thaler and Cass Sunstein say long-held assumptions that people "think like Albert Einstein, store as much memory as IBM's Big Blue and exercise the willpower of Mahatma Gandhi" are falling by the wayside. To help people, including investors, make better choices, we have to understand and embrace our emotions and predilections, say the authors, and figure out how to avoid becoming our own worst enemy.

Teachable Moments

But just recognizing our mental kinks won't help us undo them, experts say. "I don't believe it's possible to change behavior that's really hard-wired into our biology," says Andrew Lo, director of the Massachusetts Institute of Technology Laboratory for Financial Engineering. But "Homo sapiens can do what we've always done: adapt. We don't have wings, but we can fly. So we develop tools to protect ourselves from these emotional shortcomings."

The silver lining to the recent bear market is that painful experiences remain in our memories for a long time and provide lessons for the future. So let's review the past few years through the eyes of experts in investor psychology and behavioral finance, studying events not as a financial roller coaster, but rather as an emotional one.

Humans are wired to organize facts around stories. The Internet bubble was fueled by a fable that the Web would lead to an unending explosion of commerce. The explosion in real estate speculation that began in the early 2000s was firmly built on the same kind of fiction. Stories of people getting rich as property prices rose year after year "replicated and spread like thought viruses," says Robert Shiller, the Yale economist who warned of the Internet and real estate bubbles in different editions of his book Irrational Exuberance. Such tales instill confidence in people and inspire them to move fast to get rich themselves.

These stories proliferate even when they fly in the face of facts. That's because we tend to look only for facts that support our story, something called confirmation bias. So, for instance, real estate prices in Las Vegas and Phoenix rose at double-digit rates, as if land in those Sun Belt cities was a scarce commodity. The desire to cash in on the property boom ignored "obvious facts," says Thaler, such as a virtually "infinite supply of land" that facilitated an abundant supply of homes.

So think back to 2006. Real estate is on fire, the stock market is doing pretty well, and both investments look like sure bets. That's about the time the dangerous psychological juju started kicking in. Greg Davies, head of behavioral finance for Barclays Wealth, the London-based financial-services giant, says investors fell victim to the recency effect and began to lose their sense of caution because they'd known nothing but gains for several years.

As a result of the recency effect, says Davies, "what's most recent in our minds stands out." For instance, "if investments have been going up for a while, I start seeing them as less risky. I start thinking, Well, my budget for risky investments isn't full -- I can put more in there."

Buying Stimuli

As investors pile in and the markets continue to rise, herd behavior and regret drive our actions. One consequence of herd behavior is that it makes us think something is safe because it seems safe if everyone is doing it. And regret causes those who can't stand being left out to jump in.

Then, as our portfolios swell, we start to feel a collective buzz courtesy of dopamine, a feel-good chemical that the brain produces at the mere thought of making money (or driving a sports car or having sex). The more dopamine produced, the more decision-making is kicked to the primitive, emotional parts of our brain, making it harder for us to think logically. As the reward system gets excited, the fear centers in the brain are deactivated, says Richard Peterson, a psychiatrist who runs a hedge fund that aims to make money by taking advantage of investors' overreactions. "We're no longer able to observe the threats," says Peterson. "We observe only what we want to."

Now recall the mood in September 2008. The real estate sector is crumbling, and the stock market has been slipping for nearly a year. Uncle Sam has taken over Fannie Mae and Freddie Mac, and Bear Stearns and Lehman Brothers have failed. Investors, who couldn't wait to check their account balances when the market was rising, monitor them much less frequently now. They are suffering from the ostrich effect, a term coined by George Loewenstein, a professor of economics and psychology at Carnegie Mellon University.

Many investors who know intellectually that they're overloaded in stocks can't pull back, even if they're suffering steep losses. The reason is something called the disposition effect. On some level we feel that if we don't actually sell a stock that's underwater, we're not actually realizing the loss and the pain that goes with it.

Then, from mid September to mid October, the sum of our suppressed financial fears came to fruition. Stocks tumbled 30%. Do you remember that as an especially painful period? If you do, you're not imagining that pain. When we lose money, our brain reacts in the same way that it processes physical pain. Losing money hurts.

For many people, plunging portfolio values became too much to bear, and they just wanted the pain to end. So they sold. According to the Investment Company Institute, the greatest net monthly outflow from stock funds in the past two years -- $25 billion -- came in February 2009. The timing couldn't have been much worse for those who sold then. As it turned out, stocks bottomed on March 9 and surged about 50% over the ensuing six months.

As stocks have recovered, our emotions have begun to heal. Lo, the MIT professor, thinks most investors have already dealt with three of the five stages of grief-the denial, anger and bargaining phases-and are now working through the last two: depression and acceptance.

Now is a perfect time, while the trauma is still fresh in our minds, to figure out how to prevent similar mistakes in the future. Unfortunately, says Peterson, the psychiatrist and hedge-fund manager, the bear market was so painful that many investors don't want to think about it. As a result, he says, "five years from now they'll make the same mistakes."

So, if you recognize yourself in some of the actions (or lack thereof) we've just described, now's the time to take steps to make sure you don't suffer the same mental miscues in the future. You may not be able to change your behavior in trying times, but you can change your investing strategy to neutralize negative impulses.

One bold idea: If you handle your own investments and you find that emotions are tripping you up, hire an adviser. A good adviser should help you avoid those impulses-which typically stem from short-term fluctuations in the value of your investments-and keep you focused on meeting long-term goals. The extra cost could be worth the money.

You can also use a psychological quirk, called mental accounting, to your advantage. Mental accounting holds that even though a dollar is a dollar, we often mentally separate our wealth into different accounts. Consider opening a separate account to house your "safe" money-cash-type investments and other low-risk stuff that should hold up even during a stock-market crash. The size of your safe account depends on your risk tolerance and other factors. But while the pain of the bear market is fresh in your mind, determine how much of a cushion you need so that another 40% drop in the rest of your investments won't lead to poorly conceived actions that are driven by panic.

You may also want to tone down the risk in your other accounts as an antidote for increasing volatility in all sorts of markets. A more stable portfolio will leave you calmer and better able to make decisions based on logic rather than emotion.

Beware of merely mixing stocks and bonds, which Lo says creates "diversification deficit disorder." You need other assets, such as real estate, commodities and other alternative investments.

One of the best vaccines against emotional decision-making is the tried-and-true technique of dollar-cost averaging. By investing a fixed amount of money on a regular basis-the practice of just about anyone who participates in a 401(k) or similar retirement plan-you're conceding that you can't time the market. You avoid the temptation to buy high, or to pull out precipitously if the market sours. Plus, you'll continue to invest when markets decline, so -- voilà -- you're buying low. Who knew that controlling emotions could be so easy?

http://finance.yahoo.com/focus-retirement/article/107912/be-a-better-investor.html;_ylt=ApAH9skfEtqpCrB.0qa.Qc2VBa1_;_ylu=X3oDMTFiZGM1OXZpBHBvcwMxNARzZWMDZmlkZWxpdHlBcmNoaXZlBHNsawN3aGljaGluc3RpbmM-?mod=fidelity-buildingwealth

Summary:

Rather than being emotional, investing should be rational.

Learn from the recent severe bear market.  Analyse your emotions, actions and adapt strategies to optimise your investing.  Here are 3 strategies:

1. By using mental accounting, create a portfolio for those good quality stocks you wish or will hold long term.  This prevents you from reacting emotionally in the face of a falling market. 
2. Build a portfolio of stocks with lower price volatilities.  This ensure that you will be subjected less to the folly of the market price fluctuations which can be huge at times. 
3. By using dollar cost averaging, you can have the 'gut' to invest into the market when the prices are obviously low in a falling market.  Similarly, do not be carried away during the height of a bull market.  This can be prevented to certain extent by dollar cost averaging strategy, though the smarter investors will probably allocate more to cash during this period.

In any crisis, there will be opportunities.

How to value these companies' businesses today? This will be difficult. The earnings for the next few quarters will need to be tracked. Past earnings are historical and due to fundamental changes in the businesses of various companies, assessing the value of these companies based on historical earnings will be unwise.

However, some companies can be anticipated to do not too badly. These are traditionally in the defensive sectors of food and beverages, gambling, healthcare and utilities.

For other companies, particularly in the industrial, plantations, tradings, construction, and housing sectors, the future earnings will be difficult to project with any degree of certainty at present.

Yes, some of these companies might have been oversold in the general negative sentiment of the present market but one can only be very certain of this when the results of the next few quarters are known.

You survived! Valuable lessons learned

Once an investor has successfully navigated the worst of the choppy investment seas, he/she will have learned survival lessons and will have internalized feelings and a vivid experience that will be of permanent psychological and instructive value.

We're Halfway Back to the Top.

Pulling Ourselves Out of the Crash
We're Halfway Back to the Top. How Much Longer Till We Get There?


By Tomoeh Murakami Tse
Washington Post Staff Writer
Sunday, October 11, 2009

NEW YORK

As far as recovery goes, U.S. stocks appear to be halfway there.

Contrary to warnings by analysts that the market had gone up too much too fast, the rally that began in the spring only accelerated over the summer as investors took on more risk in both the stock and bond markets. The Standard & Poor's 500-stock index now stands at 1071, nearly 400 points above its recent low on March 9.

But the benchmark has almost 500 points to go before it recovers to its October 2007 high, making battered investors whole again.

The force of the surge in equities -- the S&P is up 58 percent since the March low -- came as investors grew more confident that the doomsday scenario of the nationalization of large banks and a prolonged global recession had been avoided. But with consumers hurting and unemployment high, expect the second leg of the healing journey to take much longer, experts say.

"I think we are entering into a period right now of 'Show me,' " said Robert Millen, chairman of Jensen Investment Management. "The market has bounced back dramatically. We're in a real critical period right now where the market's taking a breath and is now starting to pay more attention to fundamentals."

During the past eight recessions, Millen said, the S&P 500 took an average of 1.9 years to recover to the previous high. The fastest recovery time was 83 days, after the 1981-1982 downturn. The longest was 2,114 days, almost six years, after the recession in the mid-1970s.

Analysts will be closely watching the third-quarter corporate earnings results over the next several weeks for clues on just how long this recovery will take.

For his part, Millen says he thinks it could be at least 3 1/2 more years. Some bulls say it could happen sooner. But others say the recent rally is just another bubble in disguise -- not progress toward real recovery.

"We're seeing everything move up," said Axel Merk of Merk Mutual Funds and author of the book "Sustainable Wealth," due out this month. "But that's exactly what we saw in the pre-crisis. . . . Some investors are going to jump on the bandwagon because they want to be a part of this. But this has to have a bad ending."

During the quarter ended Sept. 30, the Dow Jones industrial average of 30 blue-chip stocks jumped 15 percent, to 9712. This is on top of an 11 percent gain in the second quarter. And on Friday, the Dow climbed to its high for 2009, gaining 78 points to hit 9865.

The S&P 500, a broader market measure, finished the third quarter up 15 percent, at 1057. Both benchmarks posted their best quarterly performance in more than a decade. The tech-heavy Nasdaq composite index rose 16 percent.

Leading the rally were the companies hit hardest during the financial crisis -- those with heavier debt, riskier balance sheets and inconsistent earnings. In the third quarter, shares of financial firms soared 25 percent; companies in the consumer discretionary sector -- think home builders, automakers, apparel manufacturers and hotel chains -- rose 19 percent. Defensive stocks in the utilities and consumer-staples sectors, meanwhile, turned in more modest gains of 5 and 10.5 percent, respectively.

According to Lipper, a mutual fund data company, funds that invest in financial services companies rose an average of 23 percent for the quarter. The best performers among sector funds were real estate funds. They returned nearly 33 percent after being hit hard in the downturn.


Mutual funds that invest in shares of small companies outperformed those that invest in more stable, larger companies. Value funds did better than growth funds as investors searched for undervalued shares. Large-cap growth funds returned 14 percent in the third quarter; small-cap value funds came in at 21 percent, Lipper said.


Funds that invest overseas fared even better. International large-cap growth funds returned 17 percent, while emerging-market funds gained 21 percent, Lipper said. Those that focus on Latin American companies were up 28 percent.

Investors also took on more risk in the credit markets. Here, funds that invest in high-yield junk bonds performed best, returning 13 percent for the quarter. Emerging-market debt funds also did well, gaining 11 percent. Meanwhile, short-term U.S. Treasury funds rose 0.8 percent. Longer-dated Treasury funds gained 4.7 percent, Lipper said.

"We're getting the typical market recovery in anticipation of the economy getting better -- and I think it will," said Mark Coffelt, chief investment officer of Empiric Funds, adding that he thinks the S&P could rise 100 to 150 points in the fourth quarter. Because they think the performance trends seen in stocks during the third quarter will continue for at least six more months, his team is looking for stocks of smaller companies that are selling cheaply, he said.

Still, Coffelt and others cautioned that it could be a slow and long recovery. Consumer spending, the main driver of the U.S. economy, is hardly expected to come roaring back, as consumers' job security is threatened and lines of credit are cut.

There is also worry that another shoe could drop. Speaking at a dinner in Manhattan on Tuesday honoring influential female bankers, Sheila C. Bair, head of the Federal Deposit Insurance Corp., said she was concerned about the commercial real estate industry and its impact on banks. "Commercial real estate is starting to eclipse mortgages" as the driver of bank losses, said Bair, who added that she expected bank failures to continue at a good clip into 2010.

Merk said stocks are overvalued and that the recent rally is a direct result of investors taking advantage of the easy money created by the Federal Reserve's fiscal policies. In response to the economic crisis, the Fed has reduced interest rates to near zero and flooded the market with money by buying up Treasurys and other assets.

"People are again yield-hungry," said Merk, 40, who added that he has no stocks in his personal portfolio. "They're going to grab anything that gives them a little bit more return than Treasurys that yield close to nothing. Rather than normalizing things where we would have slower growth but market-based returns, we have the Federal Reserve interfering in the markets artificially, depressing yields and encouraging exactly the sort of practices that got us into trouble in the first place. We haven't resolved the issues from the last crisis."

James Paulsen, the bullish chief investment strategist at Wells Capital Management, disagrees.

During the recent downturn, companies purged payroll and inventory, getting their operating costs down to "a place where they can survive the next coming of the Depression," he said. This, combined with profits generated from the economic recovery, will lead to "a whale of an earnings cycle."

"I still see a lot of potential here," he said. "I highly doubt that the markets are likely to peak a couple of months after the recession is over."

Companies in the S&P 500 were trading at 14.5 times their estimated earnings for the next 12 months, near the historical average of 15 times earnings, according to Thomson Reuters.

But bulls such as Paulsen argue that stocks' price-to-earnings ratio is not necessarily extended, citing favorable market conditions of below-average inflation and interest rates.

Jeff Mortimer, chief investment officer of Charles Schwab Investment Management, says it wouldn't be surprising to see the market pause or pull back 5 to 10 percent. Such moves are typical in the early stages of a bull market, which is where he says we are now.

So, what's a small investor to do?

Of course, the answer depends on an individual's risk tolerance, time horizon and outlook.

"I would be buying at points of weakness to add to my positions or get closer to my target asset allocation if I'm underweight equities," he said. "My recommendation would be to dollar-cost-average and get to your target allocation over the next six, 12, 18 months. You may find that the longer you wait, the higher the market gets. Then you're really in a pickle."

http://www.washingtonpost.com/wp-dyn/content/article/2009/10/09/AR2009100904712_3.html?nav=emailpage

Many Small Investors Have Sat Out Rally

Investors in mutual funds, which are among the most common ways for individuals to participate in the stock market, pulled more than $205 billion out of stock funds between September 2008, when equities plunged, to the end of March, when they began their rally, according to data from the Investment Company Institute. During the same period, small investors sought the safety of cash, pouring $357 billion into money-market funds.


In contrast, only $56 billion returned to stock funds between April and the end of August, the most recent date for which data are available. Money-market-fund levels remained high.


Many Small Investors Have Sat Out Rally
Rebound Driven by Institutional Clients

The Dow closed above 10,000 on Wednesday. (By Travis Fox -- The Washington Post)

By Tomoeh Murakami Tse
Washington Post Staff Writer
Thursday, October 15, 2009

NEW YORK, Oct. 14 -- Wall Street may be cheering the rally in the U.S. stock market, but many individual investors watched the Dow Jones industrial average soar past the 10,000 mark Wednesday on the sidelines.

Still shell-shocked from the ravaging of their retirement accounts during the financial crisis, mom-and-pop investors remained cautious as the Dow soared 53 percent from its March 9 low to Wednesday's closing price of 10,015.86.

The likely drivers of the rally are instead institutional investors such as large pension funds and hedge funds, market analysts said. And in interviews over the past two weeks, fund managers and financial advisers said most small investors have only recently begun to talk about getting more aggressive with their beaten-down portfolios.

"For the first six months of the year, people just had their heads down. I don't know how many people told me they haven't looked at their statements," said Dan Lash, a financial planner in Vienna.

It was only last month, when the Dow had already recovered more than 40 percent of its losses, that Charlotte and Larry Vass of La Plata, Md., decided they were ready to consider taking a less conservative stance. The Vasses had been mostly invested in stocks two years ago but began pulling out last fall as markets were pummeled after the collapse of the Wall Street investment bank Lehman Brothers. Over the past year, the Vasses also moved deeper into bonds, said Charlotte, who is in her late 50s.

"Back then, we were in shock," she added.

While the couple plan to keep their portfolio more balanced, Charlotte and her husband, a dentist, have asked their financial planner to be a little more aggressive. They have begun adding money -- slowly -- to stock index funds, she said.

"If your 401(k) turns into a 201(k), you can't get it back in a couple of years," said Charlotte, adding that retirement, which the couple thought might come in a few years, has been pushed further down the road.

Investors in mutual funds, which are among the most common ways for individuals to participate in the stock market, pulled more than $205 billion out of stock funds between September 2008, when equities plunged, to the end of March, when they began their rally, according to data from the Investment Company Institute. During the same period, small investors sought the safety of cash, pouring $357 billion into money-market funds.

In contrast, only $56 billion returned to stock funds between April and the end of August, the most recent date for which data are available. Money-market-fund levels remained high.

"This market rise certainly is not being driven by mutual fund investors," said Brian Reid, the ICI's chief economist. "Mutual fund flows are not causing this run-up, and I would think that probably carries over for retail investors in general."

In fact, there's evidence that small investors in the past few months have once again been moving money out of U.S. stocks. On a weekly basis, small investors took out $2 billion to $4 billion more than they put into funds focusing primarily on domestic stocks from July to September, Reid said.

ICI data show that small investors have been pushing into bonds this year, taking advantage of falling interest rates and rising prices. During the first eight months of the year, $220 billion flowed into bond funds.

This Story
The Dow Passes Mile 10,000 on Road to Recovery
Many Small Investors Have Sat Out Rally
A Look Back: The Dow's First Time Crossing the 10,000 Mark
Market Milestones

"Last year is going to change people's risk tolerance for a long time to come," Lash said. "They're not going to have a diversified stock-only portfolio. They realize that everything went down the same last year. There was nowhere to hide except Treasurys and cash."

According to Christine Parker, president of Parker Financial in La Plata, many small investors have adopted a less-than-go-go outlook.

"There's the pessimism of 'Is this just short-lived? Will this last?' " said Parker, many of whose clients are female executives in their 40s and 50s and retirees. "People are worried about consumer spending and the ending of the stimulus." In particular, she said, investors are wondering what will happen to the economy after the government's $8,000 tax credit for first-time home buyers expires at the end of November.

As stocks go higher, warnings from investment strategists that the market has increased too far, too fast have grown louder.

"We've had this wonderful run-up. What you have to be concerned about is that valuations have become stretched," said Brett Hammond, chief investment strategist at TIAA-CREF. "Markets tend to anticipate economic news, but they don't necessarily predict it. The economic news is better than it was, but it's certainly not rosy."

On Wednesday, as the closing bell approached on the New York Stock Exchange, Charlotte Vass said she had no regrets about not returning to the market sooner.


"We're cautiously optimistic, so it makes sense to move back in more slowly," she said. "The market is a fickle lady."

http://www.washingtonpost.com/wp-dyn/content/article/2009/10/14/AR2009101403657_2.html?nav=emailpage&sid=ST2009101404142

Investors should ignore the economic indicators

Diary of a private investor: investors should ignore the economic indicators
While Enterprise Inns shares have risen mightily from their lows, they are still less than two fifths of the net asset value and, good heavens, the company makes profits.

By James Bartholomew
Published: 12:19PM BST 07 Oct 2009

How do the words of that old Brenda Lee song go? Something like, "Here comes that feeling again, and it ain't right!" That was certainly my experience at the end of last week if you take "ain't right" to mean "ain't pleasant".

Markets around the world started falling in a manner horribly reminiscent of a year ago. It is amazing, incidentally, how world markets move together these days. They are like synchronised swimmers diving together, rising up in unison and twiddling their feet in the air all together.

Anyway my shares went down. I lost money – lots of it. I say this with emphasis for a friend who – to my surprise – turns out to be a reader of this column. I asked him, "which Diaries do you like best then, the ones when I tell of my successes or my flops?" He unhesitatingly opted for the latter. So this is for you, David.

Enterprise Inns fell from 135p to 123p between the opening on that Tuesday and the close on Thursday. A different friend emailed me a gloomy broker's report on the company's bonds. This downer written by a close relation of Eeyore may have played a part in the fall of the stock. Enterprise Inns, by the way, was up at 180p at the beginning of September.

So the shares have fallen 32 per cent since then. I had a quite a fair amount of cash invested in it, too. So that is plenty of money that has vanished. I am afraid though, David, that I am still just about in profit overall but my purchase this summer at a price of 167p looks pretty silly.

The report of doom was by JPMorgan. It dwelt on the pubs that had been closed, the ones that had been sold at prices which the broker thought discouraging and the review by the Office for Fair Trading which will come out later this month concerning whether or not it is fair that the pub tenants of Enterprise Inns have to buy beer supplied by the company.

As if that were not enough, he went on about the still weighty overhang of debt and the possibility of a rights issue. After reading that lot, I felt I might as well write the whole investment off and cancel my next holiday.

But something in me – probably the fact of being long of the stock – revolted. I wrote back to my friend who kindly supplied the research: "Hang on a minute. Aren't we in danger of forgetting the main point?" The main point is that Enterprise Inns is not going bust.

Whether it has a rights issue or not, Enterprise Inns is not a dead parrot. It is not extinct. It still moves and squawks. It may not be pretty but it is going to survive. For some nervous weeks earlier this year the shares were valued as though it had no future. Now it has.

And while the shares have risen mightily from their lows, they are still less than two fifths of the net asset value and, good heavens, the company makes profits. In fact it is valued at a mere four times the consensus forecast earnings. The shares still have great potential. The day after I wrote this robust case, the shares fell 6p. Incidentally, I have also lost money recently in Barratt Developments and Harvey Nash.

What about the market as a whole? It is October – a nerve-racking time and everyone remembers how bad it was last year. Perhaps precisely because investors are nervous of this month they might have held back from purchases in September and the market might survive without too much damage.

But frankly there is not much point in trying to guess stock market movements over a few weeks.

The recent falls have been ascribed by some commentators to disappointment with some figures coming from the real economy. I don't believe that.

Those of us with experience going back to Brenda Lee's glory days have learned that the stock market does not swim synchronously with the real economy. Real activity is down in the depths struggling for air but that will not stop the stock market breaching the surface. A bull market started in 1974 when the economy had quite a few more years of misery to endure.

The key things to watch, I believe are low interest rates and quantitative easing. As long as these continue, so will the bull market.

http://www.telegraph.co.uk/finance/personalfinance/investing/6267833/Diary-of-a-private-investor-Investors-should-ignore-the-economic-indicators.html

Normal Stock Guidance Doesn’t Apply

Normal Stock Guidance Doesn’t Apply
Extreme Conditions May Distort Normal Market Evaluations

By Ken Little, About.com

In a normal market, I would (and have) advised that investors look for bargains in stocks that have fallen into the value category.

A value stock is one that has been under-priced by the market. Value investors look for these stocks and buy them at a discount to their intrinsic value.

When the market corrects the price of the stock - meaning others have discovered this under-priced gem and are buying the shares - the value investor pockets a nice profit.

One of the keys to this strategy is the phrase “normal market.”

The market of late is anything but normal, in case you hadn’t noticed.

If you are confused about what to do in this market, don’t feel like you’re alone.

Experts are confused and frustrated by market conditions that don’t fit the typical models.

With large swings from low to high and back again, the long-term investor may be better off doing nothing.

If you are invested in good companies, you are probably better off sitting tight and waiting for the current crisis to work its way out.

This is not a rule, but a suggestion. If you are so concerned about your investments that you can’t sleep, then take whatever steps you need to protect you mental and emotional health.

No one can tell you with certainty what is the proper course of action.

Normal markets will return one day, but there is no way to know how long that will take.

In the meantime, if you spot a good buy in a stock, consider whether you are willing to hold it through more turbulent times that are surely to come.


http://stocks.about.com/od/evaluatingstocks/a/092208Marrisk.htm

2009-2010: Evidence of Cyclical Bull and Reflation

2009-2010: Evidence of New Cyclical Bull Markets

At CCM, we do not believe in making investment decisions based exclusively on financial market forecasting. We instead look for fundamental and technical alignment to support and confirm forecasts. The transition from a bear market to a bull market takes time. Long-term investors can migrate from bear market allocations to bull market allocations as evidence of a primary trend change unfolds over several months.

In mid-April of 2009, the NASDAQ made an important new high, which may have signaled the first major step in the transition from a bear market to a bull market. The research below covers numerous observable events which point to the possibility of a new cyclical bull market taking shape in 2009. Cyclical bull markets can last from a few months to a few years, which is in contrast to a secular bull market which can last for 20 years or more. We do not believe all the elements are in place for a secular bull market, but we must respect that cyclical bull markets can last continue for years. For example, many believe the 2003-2007 bull market was of the cyclical variety. Cyclical or secular, the market went up for four years in the last bull market, which presented an opportunity for investors. Based on studies of post recession periods and periods after the S&P 500’s 200-day moving average turns up, it is reasonable to surmise stocks could rally into the early spring of 2010.


Corrections To Be Expected
A cyclical bull market does not mean the coming months will be easy for investors. The market never makes anything easy for anyone. Significant corrections coupled with periods of uneasiness and fear are to be expected in any bull market, secular or cyclical. With a recent successful retest of lows in the S&P 500 and many markets well above their 200-day moving averages, we can afford to give our investments a little more rope during the inevitable corrections in asset prices. As time goes on, stop-loss orders and risk management techniques should be able to take on a diminished role as we will err on the side of remaining invested into early 2010.

If conditions deteriorate and the markets migrate back toward a bearish stance, we will be willing to accept the possibility that the current bear has further to run. However, bullish evidence is not in short supply as we enter the second half of 2009. We will continue to monitor the markets and invest based on the observable evidence at hand. The observable evidence at hand remains bullish.


Focus Remains on Money Supply Expansion, Asia, and Commodities
Since we have economic data and technical evidence in hand that support further gains in asset prices, for the balance of 2009 and for a portion of 2010, we will focus on the three themes below and place a reduced empasis on the two themes that follow.

Primary Drivers Next 10-12 Months
Expansion of the money supply / fiat currency concerns / inflation

Commodities, clean energy, and water

Economic shift from United States to Asia

Secondary Drivers Next 10-12 Months
Infrastructure & government programs (slow implementation of some programs)

Baby boomers' transition from consumers to savers / consumer deleveraging (still important long-term)


http://www.ciovaccocapital.com/sys-tmpl/2009bullmarkets/

Markets Make Significant Progress In Transitions From Bear Markets To Bull Markets

The transition from a bear market to a bull market is just that; a transition. Transitions take time and are not binary events like turning a light on or off. Transitions in any market can be frustrating and stressful, but if we continue to focus on the most important and telling indicators, the market should get us pointed in the right direction and aligned with the primary trends.

While there are numerous signs which can indicate the possible transition from a bear market to a bull market, the following two milestones are of uppermost importance:

• When the 50-day moving average crosses, and more importantly holds above, the 200-day moving average,


• When the slope of the 200-day moving average turns positive.

During an established bull market, a good way to eliminate less attractive markets or investment alternatives is to discard those that have a negatively sloped 200-day moving average. At the end of a bear market, it takes time for a market to send signals of the potential staying power of a rally via a positive change in the slope of a 200-day moving average. As shown in the chart below, even though stocks began to bottom in mass in March of this year, we only started to see positive changes in the slopes of 200-day moving averages in the last two weeks.

http://www.ciovaccocapital.com/sys-tmpl/200turnuppublic/

Six Defensive Moves in a Down Market

Six Defensive Moves in a Down Market
A Great Time for Regular Investing

by CraneAmyButtell
24.12.2008



Market volatility is enough to give any investor heartburn these days. Although there have been some notable gains — the Dow Jones industrial average’s 889.4 point gain on Oct. 28 being one of the most impressive ever — most of the volatility has been on the downside.


With the media delivering one grim story after another about the economy, most observers aren’t expecting to see the market stabilize soon. Unemployment is up, banks aren’t lending, big corporations are teetering on the brink of bankruptcy and banks are failing at a rapid clip, news that doesn’t exactly inspire confidence.

Still, with so much riding on your investments, including your retirement and your kids’ college savings, you might feel it’s time to position yourself somewhat defensively given how long this downturn might last. You don’t want to stop investing, because there’s no way to know when the market will rebound; you have too much to lose by being out of the market at the wrong time. But here are some steps you can take to lessen the pain and position yourself as best you can.

Dollar-Cost-Average Your Contributions

You’re most likely already doing a lot of dollar-cost averaging — investing a set amount regularly — if you’re contributing to a 401(k) or college savings plan. This is a good strategy no matter what the market is doing because when you dollar-cost average, you buy more shares when prices are lower and fewer shares when prices are higher, keeping your overall cost basis down.

If you can employ this technique with your other investment accounts, do so. By dollar-cost averaging in a volatile market, you keep your cost basis down. If prices fall farther, you’ll benefit more by spreading your purchases out over a longer period than if you just invested a lump sum all at once.

For example, if you have an individual retirement account and plan to invest the maximum allowable of $5,000 annually, you could arrange to have $416.66 transferred from your bank account to your IRA every month and have that invested in the stock, mutual fund or bond of your choice. Or you could invest the money all at once in your IRA at the beginning of the year, then dollar-cost average it out yourself over a year.



Consider Stop-Losses?

Stop-losses aren’t a good idea for most investors in most long-term investing situations. But if you absolutely cannot afford to lose more than a certain amount of money in your investment accounts, this strategy is worth considering.

You might fall into this category if you’re a retiree on a fixed income with only a certain amount of assets in your retirement account besides your Social Security. To implement this strategy, you either call your broker or go into your online investment account and set a floor on some of your investments. When the prices of the securities you select reach those floors, your brokerage will automatically sell them.

Keep in mind, however, that in falling markets the price can blow right by your stop-loss order and you may be sold out at a much lower price. This is why you should employ this strategy cautiously. (Editor’s note: Many investors don’t like stop-loss orders because of their automated nature and because they might cause you to sell high-quality stocks that drop for reasons unrelated to their fundamentals.)

Save More

In a difficult economy, it makes sense to hunker down and cut your expenses where you can. Unemployment is rising, and you never know when you or your spouse might be out of a job. If you do hang on to your job, later on you can invest some of your excess cash for your retirement, your children’s college education or any other long-term goals you have.

Below are the extra savings you can expect to generate for differing saving rates. The following assumes you’ll reap 8 percent annual compound interest, pay 25 percent in federal taxes and 6.5 percent in state taxes, and see an average inflation rate of 3 percent:

• by saving $50 a month for 30 years, you increase your savings by $25,970
• by saving $100 a month for 30 years, you increase your savings by $51,940
• by saving $200 a month for 30 years, you increase your savings by $103,880

Stretch Out the Long Term

Change your attitude on what constitutes the long term and remember that stocks historically have averaged an annual return of 10 percent or more. Think of the long term as 20 or 30 years, or even more, rather than five or 10 years.

Because stocks increased so much in the 1990s and in the 2000s after the end of the dot-com bust, the law of averages dictates that the market will then have a number of average or subpar return years at some point.

Large returns are nice, but there’s no guarantee they’ll continue in the short run. History shows that the stock market has produced many years of ugly returns, even consecutively, or returns that have gone essentially nowhere over a number of years. Think about the late 1920s and 1930s as well as the mid-to-late 1970s and early 1980s.

Surviving a negative or sideways market that lasts for years takes a lot of patience. In those circumstances, continue dollar-cost averaging, work on bolstering your cash cushion and save every dime you can get your hands on.

If you’re getting close to retirement age, consider staying on the job a few years longer to shore up your nest egg. If that isn’t a possible, consult or take on a part-time job.

Just about the worst thing you can do is start drawing your assets down when the market is tanking, as it will be difficult for your investments to recover sufficiently to fund the rest of your retirement, given lengthening life spans.

Check Your Asset Allocation

With stocks and below-investment-grade bonds taking substantial hits in the last few months, it’s likely that your target asset allocation is out of whack. Take a look at your investment accounts and determine what you need to do to get back to your target allocations.

Financial planners generally recommend that you reallocate assets periodically, with once a year being a good benchmark. At this annual reallocation, you should move investment funds from asset classes that have done well, or at least have not done as badly as others, and move them into those that have declined, such as stocks.

Given the uncertainty of the markets, it might make sense to reallocate gradually rather than all at once. For example, if your investment accounts total $100,000 and your target allocation is 60 percent stock, 20 percent bonds and 10 percent cash, you could move funds out of bonds and cash gradually to bolster your stock allocation up to the preferred target.

Such a gradual shift could work in several ways. For example, you could move money out of bonds into cash all at once, then gradually dollar-cost average into stocks over the next six months or year or so. (Editor’s note: Be careful with asset allocation so that you’re not trying to time the market, an often disappointing venture. Many investors believe that for a long-term portfolio, there’s little reason to own anything except stocks.)

Expand Your Cash Cushion

Cash is an important bulwark in a falling market and during what’s shaping up to be a potentially long recession. When you have enough cash to last out the ups and downs of the markets without having to sell any of your investments, you can respond to market developments rather than react to them.

Financial planners recommend that employed workers have six months of living expenses squirreled away. Retirees should have at least two years of cash, preferably more, so that they can ride out a bear market of several years without having to sell investments at fire-sale prices for living expenses.

If you’re still working, see where you can trim your expenses and direct those savings into a bank savings or money market account. Interest rates on these savings vehicles aren’t great, but the ease of access to these funds is the most important factor.

With an expanded cash cushion, there’s less danger that you’ll need to tap your investment accounts for funds, whether by liquidating taxable mutual funds, stocks or bonds or by arranging to borrow from your 401(k) account.

No Time to Cash Out

When positioning your portfolio, it makes sense to play both defense and offense. Just remember not to give in to your emotions and get out of the market altogether, no matter how dire the markets and the economy may seem today. The next upturn is impossible to predict.


http://www.betterinvesting.org/Public/StartLearning/BI+Mag/Articles+Archives/0109mfmpublic.htm

Cautiously, Small Investors Edge Back Into Stocks

Cautiously, Small Investors Edge Back Into Stocks

By JACK HEALY
Published: September 10, 2009

Like millions of ordinary investors, Cindy and Eric Canup are still recovering from Wall Street’s big downturn. Their portfolio is off by 25 percent. They are mindful of their spending. And their dreams of buying land in Northern California or Oregon have been delayed five to 10 years, until they can rebuild their retirement accounts.

Joe Mancini of Fredericksburg, Va., has losses on his portfolio of around 30 percent and has had to put off his retirement.

Mr. Mancini with his wife, Patricia, and their dog, Joshua. He has sold some financial stocks and become more conservative.

Yet with no guarantee they will ever be made whole again, individual investors like the Canups, who live in Oakland, Calif., are sticking with the stock market. Recently, with help from their financial adviser, they nudged some of their cash into mutual funds and took on riskier investments. They have even stopped tossing unopened 401(k) statements into a filing cabinet.

“This time last year it was doom and gloom and dire,” said Ms. Canup, 48, who works for the health care provider Kaiser Permanente. “I’m kind of amazed that we’re able to get back in as quickly as we are.”

When the financial crisis hit, some of Wall Street’s prophets warned that individual investors would be lost for years. The gospel of building a diversified portfolio, buying regularly and holding on till retirement, appeared dead. But despite a rout that erased fortunes and upended retirement plans, few smaller investors have folded their portfolios or cashed out: While they are poorer today and still leery of the markets’ returns, many are still chasing the gilded promise of profits and wealth.

“It’s got a track record,” Linda Blay, a bookkeeper in Orange County, Calif., said of the stock market. While her portfolio is still off by 30 percent, she said that “it outperforms any investment. I think it’ll come back.”

Participation in 401(k) plans held steady in 2008, even as the average account lost 28 percent of its value, according to Hewitt Associates, which tracks retirement plans. More people moved their money into cash or bonds for safety, but they did so at the margins. Over all, the contribution rate dropped less than half a percentage point.

And in the first half of 2009, when stocks hit their worst levels and then pivoted higher, only 9 percent of investors made trades in their 401(k) accounts, according to Vanguard. At the same time, alternative investments like real estate have suffered mightily, while interest rates on certificates of deposit or even high-yield savings accounts have plunged, making them less attractive.

“Inertia has really ruled,” said Pamela Hess, director of retirement research at Hewitt. “The vast majority of participants have changed nothing — not if they save, not how much they save. Nothing.”

Now, some of the money that fled stocks for safe harbors like money-market funds and government bonds last year is beginning to return. Even with trillions still sheltered on the sidelines, some $56 billion has poured into equity funds since April, according to the Investment Company Institute.

Of course, making money again can do a lot to bolster anybody’s confidence.

Over all, the average Vanguard 401(k) balance grew by $3,300 through the end of June, up about 6 percent for the year — not a great return, but better than before, according to the firm’s most recent numbers. In the first six months of 2008, the average Vanguard account lost $6,898, or nearly 9 percent, of its value.

As of Thursday the Standard & Poor’s 500-stock index was up about 10 percent for the year. But the index is still down a third from its peak, and investors are uncertain whether stocks will continue to rise in a fitful recovery hampered by high unemployment and sluggish consumer spending. Even with 10 percent annual returns, it would take typical stock investors close to three years to recoup the funds they had at the beginning of 2008.

Daniel Kelhoffer, 67, an investor in Georgia, visited his son in Germany this summer and cruised the lake near his house in his wooden 1959 Chris-Craft motorboat, encouraged by the steady rise in his monthly account statements. Joseph Fredrick, an investor in Cincinnati, exulted that, largely because of his financial adviser, his portfolio had fallen only 12 percent since the market tanked.

In North Carolina, a retired Wachovia executive, Robert Paynter, lost tens of thousands of dollars when his stock options and Wachovia shares hit the skids. In October, he told The New York Times that he felt as if he were witnessing his own death with each plunge of the stock market. This summer, he bought a year-old Corvette convertible. And while he and his wife canceled a trip to Europe, they are contemplating a Mediterranean cruise next year.

“I’m feeling a whole lot better,” he said. “As ugly as it got, I never got to a point where I thought I was going to have to go back to work or miss a meal. I can take a lot bigger hit than I thought I could.”

After the crash, Gil Livingston, a retired Hewlett-Packard manager from suburban Detroit, decided he would manage his own money instead of letting asset managers at UBS handle his portfolio. He missed the bottom of the market in early March, but has made money from well-timed purchases of technology stocks and investments in emerging markets.

“I’m slowly sticking my head back out of the ground,” he said. “I’m doing fairly well. My equities are up.”

Mr. Livingston, 67, and his wife still have a winter home in Cape Canaveral, Fla., and say they have not been forced to curtail their lifestyles. With their portfolio off by 20 percent, though, they have put off traveling and are considering whether to raise some cash by trading in their Michigan home for something smaller.

But many are more deeply scarred from the financial and psychological effects of their losses.

Last autumn, as his retirement account was plummeting in value, Joe Mancini decided to sell some financial stocks and seek more conservative investments like bonds, gold and metals funds. Even though he was able to cut his losses, he and his wife are still down about 30 percent.

“A few years ago I was hoping to retire when I got close to 60,” said Mr. Mancini, who is 58 and works for an electronics equipment distributor. “I can’t even put a date on it now.”

If thriftier consumers become a legacy of the recession, Wall Street’s plunge may have created a generation of more cautious individual investors.

Robert Furey, who works at a computer company in Naples, Fla., said he had followed all of the conventional rules of investing: he planned for the future, bought a diverse array of stocks, bonds and index funds and never tried to time the markets. He lost a decade’s worth of gains when the stock market plunged, and said he did not know whether he would ever trust the markets again.

“I was a deer in the headlights,” he said.

As Wall Street raced higher in the last few years, Ben Silbert, 38, a corporate lawyer in Manhattan, said he tried to talk his wife into funneling more of their money into stocks. But now, with their portfolio down 15 percent since last August, Mr. Silbert said he wanted to make a shift toward fixed-income investments.

“I’ve seen what can happen,” he said. “It’s been a good lesson. It’s been an eye opener for me.”


http://www.nytimes.com/2009/09/11/business/11investors.html?_r=1&ref=business

How to Invest in Today's Turbulent Stock Market

How to Invest in Today's Turbulent Stock Market

Location: BlogsAsk Doug!
Posted by: Doug Gerlach 10/1/2008 1:25 PM

With all of the uncertainty in today's markets, it can be a confusing time to be an investor.

On Monday, September 29, 2008, investors saw the largest point drop in the Dow Jones Industrial Average in its 102-year history.

On Tuesday, two-thirds of that loss was recovered.

On Wednesday, who knows what could happen?

But looking back at the stock market over time, it's clear that it's seen worse and has always recovered. There's no reason to believe that the market won't come back around -- given time, that is. Those investors who put their confidence in the resiliency of the U.S. stock markets will be rewarded, as long as they maintain the proper perspective. In five years, investments made at today's bargain basement stock prices will quite possibly be seen as smart moves.

Here are a few points to consider as you plan your moves in the weeks and months ahead:

1. Remember that the market always operates in cycles, expanding and contracting over time, but on a completely unpredictable schedule. Investing regularly throughout the peaks and valleys is key to a successful long-term investing approach. In fact, wealth is often created in greater scale as the result of investing during down markets. Of course, this requires courage and the conviction that the markets and your holdings will rebound.

2. Most certainly, don't stop investing in the stock market. Many stocks that you study will be offered at or near historically low valuations, and if you try to wait for the market to reach its absolute low, or if you wait for a "clear sign" that the market is rebounding, you'll miss plenty of opportunities. I've been increasing the monthly contributions that I make to both of my investment clubs, and expect to reap the rewards from the regular investments that my clubs will continue to make in the coming months.

3. Focus on quality companies, now more than ever. It's likely that the interest rates will rise and access to debt will tighten, so companies that are highly dependent on borrowed capital to finance growth or operations may struggle. Companies with low credit ratings should be avoided. Consider the trend of a company's debt-to-equity ratio over the past few years, as in Section 2C of Toolkit 6's Stock Study form. Look to the Complete Roster of Quality Companies on StockCentral for ideas to study.

4. Consider carefully before investing or continuing to hold financial companies. There's no doubt that the regulatory climate will change in the coming months and years, with big changes in government oversight of financial markets and the structure of financial companies. I expect continuing consolidation of financial companies, with mega-firms swallowing up smaller concerns, leading to a general state of uncertainty about the financial sector. With so much being stirred up at present, it may be some time before the dust settles and the winners in the sector become apparent.

5. Re-evaluate existing holdings in light of their exposure to the credit markets, the housing market, and their levels of debt. Companies that don't pass muster are prime candidates for replacement. With the high number of bargains available now in the market, chances are good that you can find stocks with higher quality and higher total return prospects than your questionable current holdings. Don't lose sleep over stocks that don't inspire confidence -- upgrade your portfolio by swapping out these stocks with better prospects.

As you invest in your personal or investment club portfolio in the next few months, always remember your long-term focus. ICLUBcentral's tools are designed to help you build wealth in the stock market over a five-year and longer horizon. Patience and confidence go hand in hand with successful investing.


http://www.stockcentral.com/learn/blog/tabid/159/EntryID/43/language/en-US/Default.aspx

Market Price Fluctuations

52W Hg 32.000
52W Lw 26.000
Close 32.000

Price fluctuations:
The share price showed a steady up-trend with little volatility.
At 32.00, the share price has risen 23.1% from the 52 week low price.





52W Hg 12.400
52W Lw 8.100
Close 11.300

Price fluctuations:
The share price dropped 34.7% from its 52 week high price.
At 11.30, the share price has risen 39.5% from the 52 week low price.




52W Hg 6.250
52W Lw 4.460
Close 6.200

Price fluctuations:
The share price rose steadily with some volatility to its present price which is also the 52 week high price.
At 6.20, the share price has risen 39% from the 52 week low price.





52W Hg 1.320
52W Lw 0.800
Close 1.200

Price fluctuations:
The share price dropped 39% from its 52 week high price.
At 1.20, the share price has risen 50% from the 52 week low price.

52W Hg 2.380
52W Lw 0.790
Close 1.840

Price fluctuations
The share price dropped 67% from its 52 week high price.
At 1.84, the share price has risen 133% from the 52 week low price.

How can a short-term investor profits from these market price fluctuations?

How can a long-term investor profits from these market price fluctuations?

Who gains more: those who bought and hold long term or those who sold when the market trended downwards and then bought back when the market trended upwards?

The latter group needed to get both the sell and decision correct. Some in this latter group were caught with little allocation to stocks when the market turned in March, missing the best upward returns offered by this severe bear market.

Make volatility your friend.

For an investor who will be putting in more new capital yearly into the market, an understanding of market price fluctuations is important.

It is to be expected that the price of a stock can goes down by a third and can goes up by a half, even in normal market situations.

In fact, when the market is being sold down, the long term value investor gets excited and enthused.

The risk is not in the price volatility.

• The risk is in oneself, reacting "stupidly" to price fluctuations.
• The other risk of course is making a wrong assessment of the future earnings and future earnings growth of the business of the company you bought.