Home
>
Stocks & Mutual Fund
>
The Stock Market is a Roller Coaster: Prepare for the Ups and Downs

The Stock Market is a Roller Coaster: Prepare for the Ups and Downs

IT'S REMINISCENT OF THE OLD children's tale about an old Chinese farmer who tells his friends his story, and they enjoin with "That's good" or "That's bad" on alternating lines:

Farmer: My horse ran away.

Friends: That's bad.

Farmer: She came back with a majestic stallion by her side.

Friends: That's good.

Farmer: My son tried to ride the stallion and broke his hip.

Friends: That's bad.

Farmer: The emperor came through town that week and took every able-bodied young man away to war. My son was spared.

Friends: That's good, et cetera.

Recent market trends bring this story to mind. On this emotional roller coaster, it's hard to know whether to laugh or cry. For all practical purposes, the war is over. That's good. But the battle to win over Iraq has just begun. That's bad. The markets in the U.S. have been cheered by the quick success. Good. The Japanese market has hit a new 20-year low. Bad. We could go on. It's been a wild month for news.

Fears of the SARS epidemic have hit economies in East Asia and Canada and further injured an already-weakened airline industry. A bigger question is how devastating the epidemic will become, and will it hinder an already weak recovery, or worse yet become a worldwide epidemic. Embezzlement charges caused a temporary bank run among recent immigrants who weren't aware of FDIC insurance at Abacus Federal Savings Bank in New York's Chinatown. Earnings news is rather positive, despite a few negatives. Many big names have provided surprises on the upside, while fewer companies are disappointing analysts, it seems.

Despite the recent uptrend in U.S. markets, most investors aren't particularly cheered. Most still wonder how long it will take to recover what was lost in the past few years. That focus, however, won't make the recovery come any sooner. We need to be happy with 10% growth, a substantial positive trend for those who aren't carrying any baggage. Too, for those who put their money in, instead of following the crowd and taking it out, 10% growth ought to compensate for twice the losses. The real question is whether individual investors will continue to run for the exits, hold their ground, or redouble their efforts to save and invest more.

I'm continually amazed how investors put more money in when markets are topping out, and pull money back when markets are at or near bottoms. Described in that way, virtually no one would do it, but when we add the emotional component, it is really quite easy to understand. Market bottoms come after drops, which often come with reduced portfolio values and emotional turmoil. In addition, drops come when the economy is weak, and many people need to use their money for personal or family needs while income is temporarily reduced. This underlies the primary weakness of the buy-and-hold strategy. This solid strategy is only successful if held to consistently. However, most people cannot or will not follow through on it in difficult times. Thus, it may be less effective than we traditionally imagine. No, the strategy itself is not flawed, but practically speaking, it may not be viable for real life.

Each investor needs to consider his/her own investing patterns. If you are inclined to disinvest during downtimes, a thorough re-evaluation may be in line. Re-evaluate both your strategy choices and your ability to maintain them. If you are unable to keep focused or are likely to have circumstance which prevent you from following your strategy when its most important, you need a different approach. There's no benefit to having a wonderful game-plan that you can't follow. Imagine a basketball coach whose plan includes putting in Michael Jordan when the team gets behind, but Michael Jordan isn't on the team! If you are unable to follow a buy-and-hold strategy, your ability to profit in downtimes is severely restrained. Sadly, this is when the greatest opportunity is available. Thus, a compensating strategy must be developed.

Investors must realize, however, that increasing returns often comes with higher risk. Thus, if one cannot buy and hold when one finds it unpleasant, the other alternatives involve taking on greater risk. No one really wants to hear that, but it is hard truth. High returns require higher risk, and if you are unable to "weather the storm" in times like this (what I call easy risk), you'll need to take larger short-term risks (hard risk), or else consign oneself to lower returns.

Easy risk is a long-term safety play. We risk that valuations will fluctuate, but over the long term we have confidence that they will be relatively stable. We give up our ability to observe high valuations, knowing that what we own is still the same.

Hard risk involves taking real, serious, short-term gambles. It is not a strategy that I advise, nor is it the wisest approach to investing, but it is a corner that people sometimes paint themselves into. That's bad!

We continue to advise our readers to stick with the buy-and-hold strategy. While there is obviously risk of fluctuating prices, these tend to balance themselves out in the long-run. If you have a long-run focus, buy-and hold is still the safest approach. That's good!

To send comments or to learn more about Scott Pearson's Investment Advisor Services, visit http://www.valueview.net

Scott Pearson is an investment advisor, writer, editor, instructor, and business leader. As President and Chief Investment Officer of Value View Financial Corp., he offers investment management services to a wide variety of clients. His own newsletter, Investor's Value View, is distributed worldwide and provides general money tips and investment advice to readers both internationally, and in the U.S.

apartment cleaning near Highland Park ..

In The News:

Hyundai AutoEver America suffered a data breach affecting 2,000 current and former employees, exposing names, Social Security numbers and driver's license information.

Washington court rules automated license plate reader images are public records, even when stored by vendors like Flock Safety, setting precedent for transparency.

Fake airline texts claiming flight cancellations are targeting travelers with convincing scams. Learn how cybercriminals steal personal data and credit card info.

Discover how iOS 26's new Adaptive Power feature automatically extends iPhone battery life by learning your usage patterns and adjusting performance intelligently.

New TikTok malware campaign tricks users into running PowerShell commands that download Aura Stealer, which steals credentials and authentication tokens.

Gaia Family offers fixed upfront pricing for IVF cycles with unlimited embryo transfers and financial protection, partnering with over 100 U.S. fertility clinics.

The Jetsons Act aims to position Pennsylvania as a leader in advanced air mobility by establishing regulations for hybrid ground-air vehicles.

Fake Geek Squad invoice emails are targeting users with convincing charges and urgent phone numbers to steal personal information and money.

Fox News Digital's artificial intelligence newsletter digs into a robot in Russia that faceplanted, George Clooney's alarm and OpenAI's rivalry with the New York Times.

Major data breach at Conduent exposes personal information of 10+ million people. Government contractor hit by cyberattack affecting Medicaid, child support systems.

Texas startup Janta Power raises $5.5M for innovative vertical solar towers that generate 50% more energy than traditional panels while using just one-third the land.

NASA's twin ESCAPADE spacecraft launched aboard Blue Origin's New Glenn rocket Thursday afternoon from Cape Canaveral, beginning their journey to Mars with arrival expected in 2027.

Learn how to set email reminders on iPhone and Android so you never forget to reply again. Simple built-in features help you stay organized and on top of messages.

Discover how Apple's passkeys revolutionize Mac security by replacing vulnerable passwords with biometric authentication and encryption for ultimate protection.

New survey reveals 78% of parents fear AI scams targeting their kids, yet nearly half haven't discussed these threats. Learn why this dangerous gap exists.

Chrome now autofills passport and driver's license info automatically. Google's latest browser update adds official document support with encryption and user control.

Scammers impersonate Department of Veterans Affairs employees claiming veterans owe money, but real VA communications only direct to VA.gov or official channels.

The AltoVolo Sigma hybrid-electric aircraft flies 500 miles at 220 mph while operating 80% quieter than helicopters, featuring safety systems and compact design.

Google search scam alert: fake customer service numbers can give scammers remote control of your phone. Learn how to spot these traps and protect yourself.

Electric vehicles overtake gas cars in total CO2 savings after just two years of driving, with emissions benefits growing over time as power grids get cleaner.

Louvre Museum reportedly used "Louvre" as password for surveillance system during $100M jewel heist. Learn how weak passwords put even famous institutions at risk.

Bipartisan AI jobs bill from Sens. Hawley and Warner would require companies to report AI-related layoffs and hiring to Department of Labor quarterly.

Joe A. from Shelton, Connecticut, lost $228,000 to a ZAP Solutions cryptocurrency investment scam after his divorce, highlighting rising online fraud.

AI-powered autonomous trucks from Waabi and Volvo target U.S. freight driver shortage with Level 4 self-driving technology and NVIDIA computing platform integration.

Survive flight disruptions with expert travel tips: Book early morning flights, download airline apps and know your refund rights during service cuts.

The Stock Market is a Roller Coaster: Prepare for the Ups and Downs

Stocks & Mutual Fund