Blink and You May Miss the Bounce

04Dec08

This was the title of a quick little article posted in the Oregonian yesterday. It speaks volumes to how we work with our clients and what’s really important right now. It emphasizes the lost opportunity for those who pulled out of their investments during a bear market, for one reason or another, and waited too long to take part in the bullish “bounce” on the other side. The statistics are quite astounding, with an average first year bounce of 47% following a bear market. And what about a deep bear like this? What if the bounce is even bigger than that?

There have been so many days and weeks throughout this year where everyone wants to jump ship. The DOW falls 800 points in one day and you can’t help but think, “I wish I would’ve moved to cash last week. Maybe I should do it now?! The market might drop again!!!” But we can’t allow ourselves to go there. In fact, we’re fortunate that we’re not allowed to. We believe in a long term invested approach, and through that philosophy we will not jump to the sidelines in an attempt to time the market. Market timing doesn’t work!

This isn’t the typical bear market. In fact, this is the worst bear market since the Great depression. However, we must stay the course and remain invested. We may be at the bottom now and ready to beginning moving back in a positive direction, or we may still have a little way to go. We do know that we continue to test lows around 7,500 and 8,000, and it doesn’t appear we’ll go much lower than that. Keep in mind, the average one-year rally following a bear market is nearly 50%, suggesting that bailing out or staying out at this juncture does not make much sense. The market is greatly oversold, corporate cash is high relative to the value of shares, and stock prices are low relative to earnings. Times will get better and we need to be invested appropriately.

Happy Holidays!

Ron Sloy

Next Week’s Topic: The affects of oil prices and long term interest rates on the economy and housing.