Will the stock market fall in the fall?
On balance, most predictions never pan out in the financial world. Just check on the prognostications of most economists and you'll know what we're talking about. But one of these days this seven year bull market in stocks will hit the skids. We'll either get a stunning cyclical correction or enter into a full fledged secular bear market. If the former, the bargain hunters will come out and bid up prices after, let's say, a 10 - 20% drop in price, resulting in another leg up for this bull. If the latter, aspiring bargain hunters will swoop down on those formerly high-flying stocks, gobble them up, then choke when, after a limited rise, the teeth of the bear sink in and drag the market yet lower. Whichever alternative it might be, we suspect it's coming this fall.
Now, wouldn't it be just like the market to prove even this modest prediction wrong? Still, it's hard to avoid taking measures to prepare oneself for what almost seems inevitable. A portfolio of 100% stocks screams for a place to hide at this point. Maybe you sell some winners, taking profits in order to bolster your cash position for the bargains to come. Maybe you use some sort of hedging device like buying puts or inverse ETFs, hoping to cash in on the coming tumble with the same thought of then cashing out your winning hedge positions to jump on those bargains.
OK, so let's go with the "fall in the fall" scenario. Isn't it important to know whether it'll be correction or catastrophe? Well, yeah. But if you're nimble, you'll be able to benefit one way of the other. You'll simply buy low and sell high, when those bargain stocks turn back up and rake up the profits. Easy, heh? Well, not really. More likely, the majority of investors will sell low and wait around until prices reach the unprofitable zone, resulting in their buying high.
Yes, friends, sell low, buy high, the all-too-real pattern of failure for the vast majority of investors, will likely guide the trading pattern this fall, causing another tranche of erstwhile investors to kick themselves for every having gotten involved in the stock market again, having already lost a small fortune in 2008, if not also in 2000-2002.
But leave us not become entangled in such amateurish behavior, we sophisticated investors who refuse to be manipulated by the emotions of corrections and bear markets. No, we shall march through the fray, heads held high, surveying the battle field with the bullets flying all around us. Cool, calm, impervious to either fear or greed, rationally assessing our risk vs. our opportunities, we shall seize the moment just as the market hits its trough. And as the prices recover, we shall assess then whether to hold on for another bull run, or take profits from our deft trading of a bear market bounce. Yes, that's how we envision the coming fall in the fall.
Whether that's really what we'll have the presence of mind to execute this grand plan, it's a lovely vision, isn't it?
And so ends this week in the days before Labor Day, days when things bounce and percolate in anticipation of bigger things to come in the fall - like, for example, a fall.
UPDATE: Yesterday's stock market drop may be a strong hint of what's waiting in the fall - or we may be getting an early start. Let's see if there's a strong bounce now.
Now, wouldn't it be just like the market to prove even this modest prediction wrong? Still, it's hard to avoid taking measures to prepare oneself for what almost seems inevitable. A portfolio of 100% stocks screams for a place to hide at this point. Maybe you sell some winners, taking profits in order to bolster your cash position for the bargains to come. Maybe you use some sort of hedging device like buying puts or inverse ETFs, hoping to cash in on the coming tumble with the same thought of then cashing out your winning hedge positions to jump on those bargains.
OK, so let's go with the "fall in the fall" scenario. Isn't it important to know whether it'll be correction or catastrophe? Well, yeah. But if you're nimble, you'll be able to benefit one way of the other. You'll simply buy low and sell high, when those bargain stocks turn back up and rake up the profits. Easy, heh? Well, not really. More likely, the majority of investors will sell low and wait around until prices reach the unprofitable zone, resulting in their buying high.
Yes, friends, sell low, buy high, the all-too-real pattern of failure for the vast majority of investors, will likely guide the trading pattern this fall, causing another tranche of erstwhile investors to kick themselves for every having gotten involved in the stock market again, having already lost a small fortune in 2008, if not also in 2000-2002.
But leave us not become entangled in such amateurish behavior, we sophisticated investors who refuse to be manipulated by the emotions of corrections and bear markets. No, we shall march through the fray, heads held high, surveying the battle field with the bullets flying all around us. Cool, calm, impervious to either fear or greed, rationally assessing our risk vs. our opportunities, we shall seize the moment just as the market hits its trough. And as the prices recover, we shall assess then whether to hold on for another bull run, or take profits from our deft trading of a bear market bounce. Yes, that's how we envision the coming fall in the fall.
Whether that's really what we'll have the presence of mind to execute this grand plan, it's a lovely vision, isn't it?
And so ends this week in the days before Labor Day, days when things bounce and percolate in anticipation of bigger things to come in the fall - like, for example, a fall.
UPDATE: Yesterday's stock market drop may be a strong hint of what's waiting in the fall - or we may be getting an early start. Let's see if there's a strong bounce now.
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