As of last week, the Market Climate for stocks remained characterized by favorable valuations and unfavorable market action. The appropriate investment policy in this Climate is to gradually, and I emphasize gradually, expand market exposure on significant price weakness.
Unfortunately, the failure to address the foreclosure aspect of this financial crisis has revealed itself in a fresh widening in credit default spreads, which suggests that the add-on effects to the economy will be worse than they would otherwise have been. That suggests that we allow for the possibility of “revulsion” against stocks, at least until we observe market action that suggests better tolerance of risk. There are numerous stocks that I believe will be seen in hindsight as fantastic bargains a few years from now, and investors are only beginning to separate the wheat from the chaff. Hopefully, we'll observe that process continue even if the general behavior of the market is uncertain. The Strategic Growth Fund is predominantly hedged here, with only a small exposure to market fluctuations, so most of our returns at present are likely to be driven by differences in performance between the stocks we own and the indices we use to hedge (primarily the S&P 500 and Russell 2000).
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Unfortunately, the failure to address the foreclosure aspect of this financial crisis has revealed itself in a fresh widening in credit default spreads, which suggests that the add-on effects to the economy will be worse than they would otherwise have been. That suggests that we allow for the possibility of “revulsion” against stocks, at least until we observe market action that suggests better tolerance of risk. There are numerous stocks that I believe will be seen in hindsight as fantastic bargains a few years from now, and investors are only beginning to separate the wheat from the chaff. Hopefully, we'll observe that process continue even if the general behavior of the market is uncertain. The Strategic Growth Fund is predominantly hedged here, with only a small exposure to market fluctuations, so most of our returns at present are likely to be driven by differences in performance between the stocks we own and the indices we use to hedge (primarily the S&P 500 and Russell 2000).
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