Have we hit a bottom? Bernard Baruch, the legendary investor, once remarked, "I made my money by selling too soon." And if you did sell too soon during the powerful bull rally in 1999 and early 2000, you are probably nothing less than relieved right now as we watch the markets continue to drop - and drop - and drop, hoping that the plummeting line will stall and little by little, start to inch upward once again.
In the midst of a rally, especially like the one we had in 1999 and early 2000, we tend to forget the meaning of the word sell. And in the midst of a bear market, that word is still buried as investors eagerly wait for the market to bottom to get that buy signal again.
Have we hit a bottom? It's not easy to tell: Calling market tops and bottoms is tempting. After all, your interest lies in taking advantage of the stock markets to build a bright financial future. But let's face it: Calling a top or a bottom is not going to help you in any way. Neither is the overly optimistic news media coverage of the one-day market rallies. Such coverage only results in investors rushing to their online brokerage accounts to place buy orders, only to have the markets make yet another drastic drop the next day. In case you haven't realized it by now, the market has a mind of its own, and nobody can predict where it's going next.
Instead of trying to call the market bottom, shift your focus to looking for signs that suggest changes in investor sentiment. Is more money flowing into volatile sectors such as biotechnology and the initial public offering (Ipo) markets? Is venture capital funding increasing? Activities like these took the markets sky high, and it's likely they will do it again; these areas should not be ignored. That's why in this issue of Working Money, we focus on these issues, showing you what you should look for before you leap. After all, more capital flowing into volatile sectors means bullish sentiment, which in turn means a positive direction for the general markets.
But until that turnaround happens, it might mean reallocations to the equity portion of your portfolio. In our interviews this issue, Tom Morabito and Robert von Pentz address the advantages of adding small-caps and mid-caps to your portfolio. You may also want to try adding convertible securities, the stock/bond hybrids. And let's not forget the rest of the world. You may just find one country that's faring better than others, and that's where you'll want to consider investing. These changes may not convert the negative returns you've suffered to positive ones, but they may prevent your portfolio from getting hit too hard.
Let this bear market be a learning experience for you. Don't be disheartened by the recent negative returns on your portfolio. The bull will reemerge, and when it does, you'll be better prepared to take full advantage of it. Maybe you too will be able to say, like Bernard Baruch, "I made my money by selling too soon."
Here's to smart investing!
|Title:||The Investor's Magazine|
|Company:||Technical Analysis, Inc.|
|Address:||4757 California Ave. SW|
|Seattle, WA 98116|
|Phone # for sales:||206-938-0570|
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