Home About Archives RSS Feed

Independent Investor: Fear and Loathing on Wall Street

Bill Schmick

It has been over a year since investors experienced the kind of sell-off that has beset the global stock markets this week. As of Thursday, most indexes have lost 10 percent or more. The jury is split on whether we are at the bottom or have more to go.

Most of the losses have occurred quickly, in around 8-9 days, which although painful, could be a blessing in disguise. Sharp, short corrections, in my opinion, are much better than corrections that drag on for months losing a little each day.

Of course, these large declines often trigger strong emotional reactions among investors but decisions based on panic rarely prove to be the right ones in hindsight. So I thought I would provide a little perspective on why the markets are selling off and whether or not you want to join the ranks of sellers.

Over the last few months, the macroeconomic data began to weaken. At first, economists explained that it was caused by bad weather, then the Japan earthquake, but as the numbers continued to come in at a less-than-expected rates investors grew increasingly nervous. Then last week, while all eyes were focused on the debt ceiling crisis, the Commerce Department announced that second quarter GDP came up short — 1.3 percent versus 1.7 percent expected. Even worse, the first quarter was revised downward to just 0.04 percent, a shockingly dismal performance.

That number, combined with an unemployment rate above 9 percent, plus continued uncertainty within the poorer countries of the EU, was enough to tip the scales. The trading range that the markets have been locked in since the end of April was finally resolved to the downside. Since then, we have broken several technical supports and are hovering just above a big one at 1,225 on the S&P 500 Index. If it breaks down and through this level, the chances of additional losses are quite high.

Sounds like doomsday, doesn't it? Well, the same thing happened last year for the same reasons. The economy was slowing, unemployment rising, Europe was in trouble and the markets dropped 16 percent from April 2010 through August. It was then that the Federal Reserve Bank announced the possibility of QE II. The markets reversed, exploded upward and investors never looked back.

Since March 2009 we have had seven such "dips." Each pullback was considered a buying opportunity and those investors that did so have been mightily rewarded. No one knows if this will be No. 8 or if we are going to continue lower. At some level, stock prices will become just too cheap for value buyers to remain on the sidelines. Some say we are at that level now.   

My advice is to decide how much you are willing to lose and when you reach that limit sell and move to the sidelines. For some investors that can mean 5 percent (you should already be out), others will accept 10 percent, while some might be willing to sustain even more. Once your limit is reached don't hesitate. Be prepared emotionally for the possibility that the markets could turn around a day after you sell out. Accept that if it happens, and don't beat yourself up for not staying the course.

For those of you who have bond investments, keep them since bonds and gold are benefiting from the stock selloff.

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at (toll free) or e-mail him at wschmick@fairpoint.net . Visit www.afewdollarsmore.com for more of Bill's insights.

Tags: selloff, corrections      

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Pittsfield Council Approves New Water and Sewer Rates
North Adams Council Restores Fire, Police Chief Titles
Pittsfield Firefighters Donate Christmas Gifts to DCF
1Berkshire Annual Meeting Remembers Klefos, Looks to Year Ahead
North Adams Movieplex Holds 'Five For Free' Food Drive
BHS Expands Rheumatology Services With New Doctor
What Is Smarter: Paying Off Debts or Investing?
Tyer Meets With Herberg's Future Leaders
Pittsfield to Continue With Wastewater Treatment Project Plan
North Adams Council Approves Tax Incentive for Tog Manufacturing

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



Categories:
@theMarket (275)
Independent Investor (376)
Archives:
December 2018 (1)
December 2017 (5)
November 2018 (9)
October 2018 (5)
September 2018 (4)
August 2018 (9)
July 2018 (2)
June 2018 (8)
May 2018 (8)
April 2018 (7)
March 2018 (6)
February 2018 (7)
January 2018 (7)
Tags:
Euro Debt Wall Street Markets Stocks Debt Ceiling Bailout Crisis Metals Europe Currency Banks Deficit Taxes Congress Jobs Pullback Interest Rates Stimulus Retirement Election Europe Stock Market Greece Selloff Oil Commodities Economy Recession Japan Rally Fiscal Cliff Federal Reserve Housing Energy
Popular Entries:
The Independent Investor: Don't Fight the Fed
@theMarket: QE II Supports the Markets
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Will the Municipal Bond Massacre Continue?
Recent Entries:
The Independent Investor: Will Our Country's Military Win the Next War?
@theMarket: Markets Hope for Trade Breakthrough
The Independent Investor: Sustainability Investing and Millennials
@theMarket: It Is a Black Friday on Wall Street
The Independent Investor: The Origin of Black Friday
@theMarket: Markets Need to Hold Here
The Independent Investor: The Apple of Our Eyes
@theMarket: Stocks Take a Breather
The Independent Investor: Mid-Term Results Take Investor Focus Off Washington
The Independent Investor: Time to Check Your Risk Tolerance