This Market Is Different
All of the talking heads have been telling us that this market is different. You are going to have to be patient and soon (hopefully in your lifetime) the DOW and the Nasdaq will be back at their old highs. They cite all the statistics about how the economy is improving - consumers are spending, the consumer confidence index looks OK, unemployment is getting better, blah, blah, blah.
Those trees are all nice, but they better step back and look at the forest. It's on fire and going up in smoke. The major trend has been down since the beginning of 2000 and is continuing with only occasional brief upward movements. The Dow lost 6% in 2000 and another 7% in 2001 and so far this year is off almost 8%. I won't mention the Nasdaq. That is ugly.
From 1931 to 1951 the economy doubled. The Gross Domestic Product was up 100% yet the stock market did nothing for 20 years. What few investors that were left after the '29 Crash made their money from dividends not stock price appreciation. It took 25 years for the stock market to go back up to the 1929 high.
Why are we in a bear market that can last for many years when things look so good? There does not seem to be a correlation between a good economy and stock prices. For more than 100 years the P/E ratio for the S&P500 index has been about 15. Today it is 41. That is figured on the earnings of a company paying you back your money in 41 years. YEARS! Are you kidding? I'll need my money before that. Very simply this is telling you that the stock market is very over-valued. Either corporate productivity must increase dramatically or stock prices must come down. Right now it looks like the latter is happening. So far about $6 trillion (that's with a 'T') has vanished from stockholders portfolios these last 2 years. Nobody else got it. It's just gone. It was all paper profit anyway.
Your broker tells you you don't have a loss until you sell and not to worry as the market always comes back - except when it doesn't. Since 1920 there have 3 major bull markets that have lasted about 16 years. The last one started about 1982 and ended at 2000. Each one of the bulls has been followed by a sideways to down market for the next 16 years. I am no soothsayer, but this has all the makings of one of those 16-year periods. What to do?
There is only one thing that is prudent until the carnage stops. Sell out of all stocks and stock mutual funds except no-load bond funds. (It is not too late to sell.) There are many good ones such as Government, International and Mortgage Backed no-load bond funds with varying lengths of maturity. It may not be exciting like the 1998-99 run up, but you will have your money when the dust settles.
This market is different. It's a bear.
Al Thomas' best selling book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter to receive his market letter for 3 months at www.mutualfundmagic.com to discover why he's the man that Wall Street does not want you to know.
Comments to al@mutualfundmagic.com
Copyright Albert W. Thomas All rights reserved.
More Resources
Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exitingMore Stocks & Mutual Funds Information:
Related Articles
The Secret Art of Backtesting
If you have not back tested your trading system, you might as well trade with your eyes close. In fact, whatever technical analysis criterion you use to trade with, be it moving averages, candle sticks, volatility breakouts, fibonacci retracements or any other trading system you have devised you're going to need to back test your trading system thoroughly and objectively in order to remove any possible doubt about it's capability.
Mutual Fund Ball and Chain
The broker told me not to sell because the mutual fund I owned had a 2% redemption fee and they would penalize me if I did.I got to thinking about it and did some simple math to see what that would cost me if I sold.
8 Penny Stocks to Avoid
There are many good penny stock investments available, which could turn a small amount of capital into a small fortune very quickly. However, to discover these you need to know what to look for and what to avoid.
Why Investors Use Financial Planners
Do you have a financial planner? Does one of your friends have a financial planner? Maybe you take your advice from your broker. As I have said countless times before a broker will make you broker.
Play another Day
Money management starts with protecting your capital, realizing profits and cutting losses. As I have stated in the past, without cash, you can't invest.
Why Buy and Hold?
Since I can remember, and that's a long time ago, the Wall Street brokerage companies, mavens and mutual fund managers have been exhorting the mantra of Buy and Hold for all your investments. There have been erudite studies published that this is the only way to go.
Commoditizing the world
Let's discuss commodities; with the latest Enron situation, it is important to understand the way things work. A commodity is anything useful, especially a transportable agricultural product or mining product.
The Exclusive Club of Large Caps
Picture one of those clubs where only the real heavyweights need apply. In the library the old aristocrats, General Motors and JP Morgan, are dozing in their leather chairs.
Low Expense Ratio
One of the big advertising kicks today from mutual funds is to tell how low their expense ratio is and that you will make a great deal more money if you buy and hold with them. Partly true, but that is not the whole story.
Online Investing & Stock & Share Trading: 4 Reasons Why Most Online Investors & Traders Go Broke
Are you attracted to the idea of being in control of your financial future, but confused about how to start investing in the stock or share market, while avoiding costly mistakes?Or maybe you're disappointed with your performance so far?Does it sometimes feel like every time you take the plunge and buy into the market, the price goes down?That's understandable..
Stock Valuation using the SMP Model
Disclaimer: Please note that I do not necessarily purchase, own, or partake of any of the securities or other financial instruments mentioned in this article. I also do not take any responsibility for any actions resulting from any actions taken by anyone who reads this article.
The Stock Market - How Just One Question Will Tell You All You Need To Know About Your Stock Broker
Last time we looked at the real performance of the stock market (we used the Dow Jones as a reference point) and the apparent performance that makes the headlines and can be seen by a casual look at a chart or "ballpark" figures - briefly; the Dow went up, for example, less than 50 points between April 1999 and April 2005 - essentially 6 years with no growth!But behind that seemingly "becalmed" Dow there were at least 10 significant moves each and every year totalling many thousands of points!But did the Wall Street Moguls, the so-called "Masters of the Universe" make you any money from those huge movements? No.Of course they didn't!Here's how I know.
Hot Stock Investing ... How to Pick Hot Stocks with Momentum Stock Trading
Profitable day traders recognize that momentum trading is among the fastest & most effective ways to harvest BIG piles of cash in the stock market.The problem is that if you don't know what stocks to look for and how to approach them while limiting your risk, you won't even get close to making some profits.
VooDoo Training For the Stock Market
If you go to Haiti or other places in the Caribbean you may run into the Voodoo tradition of magic. There are long and mostly noisy rituals with the medicine man spouting words that bring great power and conjure up whatever it is the supplicant desires.
War Market
There is no question that the stock market is being affected by war jitters. When it looks like peace we have a strong rally.
Never Lose Money
Never lose money in the stock market again. Yeah, I know.
Index Fund Trading Using Technical Analysis and Swing Trading Strategies
Index Fund Trading can be one of the most profitable..
Investment Lawyers and Trash Stocks
The trash business in its efforts to cook their books trying to keep pace may find itself in some trouble. The efficiency per Garbage Truck unit numbers was growing exponentially at a time when consolidation has slowed as there is a decreasing number of worthy deals to make for a good value, Ah ha Warren Buffet's favorite remarks are here too.
The Importance of Using Stop Loss Orders When Spread Trading the Financial Markets
A Guide to Using Stop Loss Orders Stop losses are market orders designed to allow you to limit your losses.When you place a stop loss you are instructing the spread betting company or stock broker to cut your position when it reaches a certain loss level (or in some cases, profit level - more later).
9 Deadly Trading Mistakes!
The following are a list of nine things you want to avoid at all costs. Anyone of them can literally destroy your financial dreams and goals!1.