Tuesday, August 28, 2007

Volatility is Back

It didn't take long to get a rush of volatility back into the market. Today's action was triggered by expected low consumer confidence numbers, and accelerated by the Fed proclaiming that they were hoping the market would straighten itself out, thus limiting the odds of further rate cuts.

It is really interesting to me how many people in this business (mainstream media/market commentary) change their stances on a daily basis. We all know that markets experience ups and downs, but so many people forget it. I mean a month ago people were positive that this year would be outstanding for equities. Then two weeks ago, it was as if the whole global economy was about to collapse. Then we get a rate cut, and some hedge funds buy bank stocks that have been oversold, and all of a sudden we are in full bull market mode again. If you're an average investor trying to trade some stocks and funds, there is no way you can profit from listening to these people. By the time you figure out what they are saying, things are already moving, and you get stuck buying in too high. Then the market turns, and they're screaming sell.

I've spent a lot of my time lately researching alternative methods for investing and stock picking. I recently read Ken Fisher's book, The Only Three Questions That Count. I have been intrigued by what I read, and I think his theories make sense for someone desiring a change in tone. He debunks a lot of theories that are widely accepted on Wall Street. His thoughts on P/E ratios, budget and trade deficits, and gold are all interesting. I'm also intrigued by his explanation of how companies have used cheap debt to their advantage, and thus created the latest bull market. The biggest thing I've taken away from it is that you have to think for yourself, and not believe everything you hear because it usually is either a) false, or b) already priced into the market. In either case, you lose.

Anyway, its something to consider when reading the usual commentary. The volatility appears that it will continue, and if you're not in a comfortable situation with your investments, cash is not a bad place to be, I don't care what the article of the day says.

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