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
Brayton Pupils Encouraged to Remember Sacrifices
Drury Announces Third Quarter Honor Roll
Williams Appoints Directors of Financial Aid, Admission
Williamstown Rotary Club Awards Paul Harris Fellowship
Darrow School Names Top Students for Class of 2018
Attorney Judith Knight Running for Berkshire District Attorney
Main Street Hospitality Appoints General Manager of Red Lion Inn
WCMA Names New Director
Memorial Day Events 2018
Shire City Herbals Completes $1.4 Million Expansion Project

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 (259)
Independent Investor (353)
Archives:
May 2018 (7)
May 2017 (1)
April 2018 (7)
March 2018 (6)
February 2018 (7)
January 2018 (7)
December 2017 (8)
November 2017 (5)
October 2017 (5)
September 2017 (5)
July 2017 (2)
June 2017 (8)
Tags:
Debt Housing Energy Stock Market Banks Japan Economy Greece Wall Street Deficit Crisis Recession Markets Commodities Debt Ceiling Bailout Jobs Oil Europe Europe Pullback Election Retirement Federal Reserve Fiscal Cliff Metals Selloff Stimulus Congress Rally Euro Interest Rates Stocks Currency Taxes
Popular Entries:
The Independent Investor: Don't Fight the Fed
@theMarket: QE II Supports the Markets
The Independent Investor: Understanding the Foreclosure Scandal
@theMarket: Markets Are Going Higher
The Independent Investor: Does Cash Mean Currencies?
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:
@theMarket: Nothing Memorable in the Markets this Week
The Independent Investor: It Is No Longer Enough to Simply Manage Money
The Independent Investor: Are Americans Saving Enough for Retirement?
@the Market: Stocks Look Ready to Reach New Highs
The Independent Investor: What's Up With Oil?
@theMarket: China Worries Dominate Markets
The Independent Investor: Financial Scams Targeted at Elderly Are Epidemic
@theMarket: Peak Earnings Versus the Yield Curve
The Independent Investor: The Opioid Effect
@theMarket: Earnings Up; Stocks, Not So Much