Moves To Make Now

The last 12 months have felt like a cross between Dante’s Ninth Circle of Hell and Mr. Toad’s Wild Ride.

So far, the almost euphoric run-up in stock prices seems less like a testament to savvy bailout strategies than it is a revelation of how desperate investors are right now for any glimmer of hope. Bear market rallies are actually common than most people realize and the one we experienced late last year is a great case in point. It started in late November and advanced a total of 20% in the subsequent seven weeks before it headed south again.

I fully agree with that arguments especially major institutions are functionally insolvent and in a market as unpredictable as this one, however, I am less concerned with short-term rallies than I am with long-term investing success.

We are experiencing some good news with Pandit’s Citi memo that provided the first real glimpse of hope in months. One should be aware that investors have trillions of dollars in cash on the sidelines and it is widely assumed that this money will come roaring in and will somehow help the markets recover faster than they would otherwise.

We are now sitting just above the market’s 12 year lows. History shows we’ve been here twice – once following the Great Crash of 1929 and once in the early 1970s. Both cases turned out to be the kind of phenomenal long-term buying opportunities that I said this financial crisis will turn into once the carnage stops. From a psychological standpoint, the depth of this market decline begs the question ‘How much further can it go?”

I am advocating of having a disciplined and well-thought investment plan right now – firstly by make a wish list of stocks you want to own, secondly, don’t bet the farm on all-or-nothing assumption that ‘the’ bottom has been reached, thirdly, don’t confuse the desire to make up losses with an actual long-term investing perspective. If you are anxious to jump the gun and get in, make sure you are doing so because you are going after your ‘A’ list of companies and are not merely trying to recoup losses that require you to take on more risk than you would otherwise be comfortable with.

Remember, the reason why most people have gotten hurt so badly is that they came into this mess by having too much stock and subsequently to much risk – a lesson best not repeated the next time around.