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Published by dec10titanmass

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Published by: dec10titanmass on Jan 22, 2012
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Title:Déjà Vu, All Over Again (and again…) Word Count:969 Summary:Market Corrections can be good for the wallet! Corrections are part of the normal “shock market” menu, andcan be brought about by either bad news or good news. If you don’t love corrections (and deal with themlike visiting relatives) you really don’t understand the financial markets. Don’t be insulted, it seems asthough very few financial professionals want you to see it this way. Keywords:Investors, asset allocation, stock market, Wall Street, investment grade, cash, economy, Income Tax,financial plan, value stocks Article Body:During every correction, I encourage investors to avoid the destructive inertia that results from trying todetermine: "How low can we go?" and/or "How long will this last?" Investors who add to their portfoliosduring downturns invariably experience higher values during the next advance. Yes, Virginia, just ascertainly as there is a Santa Claus, there is another market advance in our future. Corrections are part of the normal “shock market” menu, and can be brought about by either bad news orgood news. (Yes, that’s what I meant to say.) Investors always over-analyze when prices are weak and losetheir common sense when prices are high, thus perpetuating the "buy high, sell low" Wall Street line dance.Waiting for the perfect moment to jump into a falling market is as foolish a strategy as taking losses oninvestment grade companies and holding cash. Repetition is good for the brain’s CPU, so forgive me for reinforcing what I’ve said in the face of everycorrection since 1979… if you don’t love corrections (and deal with them like visiting relatives) you reallydon’t understand the financial markets. Don’t be insulted, it seems as though very few financialprofessionals want you to see it this way and, in fact, Institutional Wall Street loves it when individualinvestors panic in the face of uncertainty. Psstt… uncertainty is the regulation playing field for investors,and hindsight isn’t welcome in the stadium. A closer examination of the news that’s fit to print (but isn’t printed often enough) should make you moreconfident about the years ahead, whatever your politics. The good news is very, very good: 1. Employment, jobs, and unemployment numbers are as good or better
than they have been in years. 2. Manufacturing numbers are stronger and trending upward. 3. The “core”inflation rate is historically low. 4. Interest rates are also historically low. 5. Durable goods orders aretrending upward. 6. Corporate earnings reports have been strong. 7. Corporate dividend payouts have beenincreasing. 8. Equities, as an Asset Class, are considered the most fairly valued, when compared with RealEstate, Fixed Income, and Commodities. 9. Income Tax Rates are at low historical levels, particularly withregard to investment income. 10. Gross domestic product is growing.The bad news isn't all that bad, pretty much the same ole stuff: 1. Hurricane Damage. We’ve actually hadfewer major storms than anticipated. The ones we’ve had were devastating, but the rebuilding/preparationtask ahead will be good for the economy. 2. War in Iraq. There’s always been a war of some kind,somewhere. It’s bad, but only the battlefield has changed… and war has also always been good for theeconomy. 3. Politics. We have an unpopular President who can’t seem to get out of his own way. Who werethe last ones that were loved? Didn’t they have wars? 4. Wall Street/Corporate scandals. Hardly new andnever economy busters. 5. Energy prices. I still don’t see gas lines, and maybe somebody will push foradded refining capacity. 6. Trade deficits. News would be giving foreigners more money so that they couldbuy more of our products. 7. High consumer debt. New? Not. 8. The terrorism threat. A major seriousproblem for the past how many years? The federal regulatory agencies probably do more damage to theeconomy. 9. The Avian Flu pandemic? Maybe, but not yet, and we’ll really need those bad boy drugcompanies then, won’t we? 10. The Anniston/Pitt break up, and neither the Yankees nor the Bosox in theWorld Series. Now we’re talking! Clearly, there are no new (economic) problems to be overly concerned about. And for now, we simply (and Imean simply) have to deal with the opportunities at hand. Low, but increasing, interest rates force fixedincome prices down and yields up… Opportunity One! Economic good news encourages higher rates toreduce inflationary pressures causing equity prices to trend downward… Opportunity Two! These forces of good are intersecting with the dark side of calendar year mentality Wall Street, causing premature tax lossselling and portfolio Window Dressing… Opportunities One and Two squared! There is an Investment Mindset Solution for the problems that most people have dealing with corrections,and rallies too, for that matter. I’ve never understood why “yard sale prices” here are so scary. What if youcut off a finger each time you get a splinter? Wounds heal, and so do the prices of high quality securities. In recent years, Wall Street and the media have turned the process of investing into a competitive event of Olympic proportions and stature. What was once a long term (a year is not long term), goal directed activity,has become a series of monthly and quarterly sprints. The direction of the market isn’t nearly as important asthe actions we take in anticipation of the next change in direction. Performance evaluation needs to berethunk (sic) in terms of cycles! The problems, and the solutions, boil down to focus, understanding, and retraining. It would be impossibleto cover each of these issues here, but here are a few teasers. You need to focus on the purposes of thesecurities in the portfolio. You need to understand and accept the normal behavior of your securities in the

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