Experts
advise patience, however
The
market is in much better shape than it was a year ago.
Growth has accelerated in most of the country, as the
job picture improves and orders increase. The Federal
Reserve’s survey of business activity in November
found conditions improving in the economic climate all
over the country, appearing “reasonably broad based”
the survey reported.
Then, on December 9, the stock market ticker flashed Dow
10,000 for the first time in 18 months, a strong sign
of the resurgence of the bull market. The Dow could not
hold its gains, but investors remain confident, certainly
much more so than last year. Still, don’t jump too
soon to get in on the action, experts caution.
“It’s a little late to be jumping in now,”
says Stacey Wall, CEO of Pinnacle Trust in Ridgeland,
“unless you have a real long-term focus. We’re
beginning to see signs that this market move, which we’re
calling a cyclical bull market, may be maturing. We’re
still overweighed in stocks, meaning that we think stocks
is a better place to be right now than bonds or cash,
such as money markets or CD’s. But we’re watching
it very closely, and we scale back on the stock over weighting
at some point.”
Wall notes that the S&P 500 is up 35% over last year
and the Nasdaq is up 75% percent. “When I predicted
in my annual Economic and Market Forecast, which I put
on with Community Bank in February, that we’d be
up as much as 50% from the October, 2002 lows people thought
that was crazy, especially after three years of decline.”
However, Wall proved to be prescient.
“The average investor tends to get too optimistic
at market tops and too pessimistic at market bottoms,”
Wall observes. “Our job now is to temper the confidence
just as at this time last year, we encouraged our clients
not to bail out.”
Danny Barfield, of Barfield, Lindsay & Associates
in Cleveland, agrees with Wall. “It’s really
human nature to put money in the hot market and then immediately
take it out when the market cools,” he says. “We
have to work hard to instill in our clients, during the
recent hard times, that they didn’t buy in to sell
for less; they bought to sell for more. To stay in the
game is the only way to recoup any losses you might have
incurred, and some sectors of the market are now up 35
to 40 percent.”
As to what’s ahead, Barfield says this: “Allocate
your assets and rebalance your portfolio. I don’t
ever try to predict the market; rather, I try to follow
sound investing principles. You don’t ‘time’
the market, either,” Barfield goes on to say. “That’s
a losing proposition. You put money in the market and
leave it there. That’s how investors become and
remain successful.”
As to why the market is turning around now, Ashby Foote,
President of Vector Money Management in Jackson, says
first you have to look at why the market hit on such bad
times.
“The downturn we witnessed from 2000 to 2002 was
exacerbated by bad Fed policy—-they put us in a
deflationary spiral—and overzealous regulation,
by the FCC and other government entities” Foote
explains. “The FCC crashed and burned the telecom
sector and the Justice Department going after Microsoft
hurt the economy, as well. The heavy hand of the government
interfered with the boon and then the Fed over tightened
and cut off the money supply, which led to deflation.”
Foote says that the good news now is that the Fed’s
former bad policy has been corrected, but “we’re
still dealing with the hangover, if you will, of major
bankruptcies for example. Now, though, we have enough
liquidity in the system to foster growth. We do need much
less regulation, though, to have full economic recovery.”
Giving a forecast, Foote says he experts to see continued
growth. “We now have significant tax policy changes
in place as a result of the most revolutionary tax cut
in 20 years provided by the Bush administration, that
has been very positive for the economy. Cuts in the tax
on dividends, from 39.6 to 15 percent, along with the
cut on capitol gains and a gradual lowering of the top
rate on income have all contributed to reduce the cost
of capitol which means it becomes more plentiful and more
available for new enterprises and expansion of existing
businesses.”
Mike Brister, of Blakeman, Brister and Putnam in Cleveland,
says that lower interest rates have encouraged people
to seek alternatives in investments, instead of relying
on bonds and CD’s. He believes this is positive
for the economy.
“Over the last 18 months, we’ve been easing
a little more money into the markets than we were, say,
three years ago,” Brister reports. “A large
portion of my clients are middle-aged or older and are
just looking for income. They are not the prime candidates
for growth in the market. We are, though, encouraging
people to increase their holdings in the equity markets
right now.”
Brister says the perception now is of a stable market.
“And there’s a lot of truth to that, especially
here in the Delta,” he says. “The upturn that
our farmers are seeing here in the last quarter, with
good yields and good prices on commodities, will help
our local economy tremendously.”
“It was time for the market to turn,” says
Gary Gainspoletti, Gainspoletti and Associates in Cleveland.
“It’s really the law of the economy: cycles
are the very nature of the market. Really, though, as
far as investors are concerned, it doesn’t matter
if the market is up or down—you still have to do
some basic things. You’ve got to follow good asset
allocation models that are designed to accommodate your
specific risk tolerance; you’ve also got to use
good and adequate diversification standards, which are
applicable to investments. By this I mean you have to
diversify your investments regarding who or what you’re
investing in—the size of the company, whether domestic
or foreign, etc.”
And while mutual funds have gotten a bad reputation of
late, Gainspoletti says that they have given the average
citizen on the street the chance to invest in the market
with as little as $1000 and become a “player”.
“Such a person can instantly start out having a
diversified portfolio with one investment. I think it’s
great that more and more people are educating themselves
about the market and becoming involved in it.”
The future? Gainspoletti says while all signs are there
for future growth, the period of history we are living
in is full of change which can have market repercussions.
“Look at 9/11 and the subsequent war,” he
says. “You have to be patient and persistent and
know exactly what your investment goals are. They must
be defined and risk must be determined.”
So, while national investment expert James K. Glassman
recently wrote, “The problem with investing is that,
done right, it’s not that much fun….(it requires)
equanimity, restraint, moderation and discipline”,
it’s these qualities, our experts agree, that will
pay off in the long run, regardless of the fickle and
moody nature of the market. DBJ
