A Tough Market Week Tested Investor Conviction
Last week’s action was brutal. Major indices have pretty much given back all their gains from earlier in 2014. Talk of an imminent market crash are everywhere as bearish analysts have come out of hibernation to do CNBC interviews.
Could stocks continue going lower? Absolutely. Does that mean you should be selling? Probably not. It depends on what you specific stocks you own. If you invest with knowledge you should have a pretty good idea of what you think your holdings are worth. If they appear undervalued today, why sell simply because someone offers you a bad price?
A quick glance at the six-month charts shown below illustrate how fast sell-offs can accelerate before turning on a dime. Think back to how well you handled the late July – early August plunge to see if you qualify as cool-headed enough to short-term trade extreme volatility.
Many of the negative talkers missed the entire massive 2012 – 2013 run-up. They are lobbying for a huge crash in order to be able to buy in cheaply. That’s the only way they can ever catch up to those managers who were long during the good times.
As of October 10, 2014, the 30-company DJIA and broader-based Barron’s 400 are slightly negative year to date, excluding dividends. Both the S&P 500 and Nasdaq Composite are still in positive territory.
Shares of utilities actually advanced last week as safe haven plays but look very expensive on a historical valuation basis. The Fed’s ZIRP (zero interest rate policy) has made lower than typical yields look more attractive than they would otherwise.
If you were heavy in utility stocks prior to the market’s plunge, be happy but don’t overstay your welcome.
Holders of electric, phone and gas company shares might do well to swap out of them and into stocks that have been beaten up badly simply due to the nervous overall environment. Over the long term you get paid very well for making what seems like the ‘uncomfortable’ trade at the time.
Mom & Pop continue to work against their own interests, by doing the opposite of what makes sense.
Make sure you don't mimic their behavior.
