Summer Doldrums May Spell Profits Ahead

The financial markets have improved since my last blog at the end of June.

By most measures, stock prices are higher; Dow Industrials, +4%, Nasdaq Composite, +5%, and S&P 500, +1%. Some areas groups are lower, such as utility, energy and commodity-based stocks. The same groups that outperformed prior. The range of prices, spelled volatility, has been rising, which I think indicates the start of standoff between buyers and sellers. I'm not certain of this, but if the lows of mid-July can hold, we may not get another chance to buy at ‘sale’ prices this year. If the “worst case” is a 30% bear market, then we’ve seen two-thirds of that pain already by mid-July. A run to the former Dow high of 14,200 from here would be a 20% gain, so it would be worth the wait, even if it took 2 years to get back there. Look forward, not back, and you’ll no doubt enjoy the ride with less stress.

Still not comfortable with stocks? Try to dip your toe in gradually, adding to your retirement account or mutual fund account with any idle cash or money from your tax rebate (if you got one). In a falling market, you will lose less if you spread out your investing. For example, investing equal amounts at months end from Dec. 2007 through July, 2008 would have lost you 6.5% vs. -13.7% if you lumped it all in year-end 2007. Now it's easier to be made whole again.

Financial Media Reporting Alert

I enjoy reading, especially anything financial, and turn to both on-line and hard copy newspapers and periodicals. Including Barron's, The Wall Street Journal, Investor's Business Daily, USA Today, and the local Fort Lauderdale News / Sun-Sentinel. But...let's get the facts straight, reporters, TV and radio hosts! I see more sloppy reporting and errors in the daily media with stock prices, financial calculations, interest rates, etc. In the past few months, radio hosts have scared the bejesus out of my morning commute by reporting on the prior day's crashing stock prices, only to find out that the program was a replay of a show the prior week. Or the numerous mis-prints in the local paper; gaining stocks with minuses before their prices, down and up arrows mixed up. USA Today columnist John Waggoner's Friday column reported that "A 10-year Treasury note, for example, now yields 3.93% ... your $100,000 bond investment would pay you about $393 a month". Oh yeah, John - my calculator shows $3,930 a year in interest would be $327.50 per month, about $65 per month less. (Hint, use 12 months in the year, not 10). If you're bought some Treasury bonds today, you're getting 17% less income based on his calculations. Buyer beware.

Generally, the financial-only based news sites and weekly papers are very much more accurate thant the dailies. Maybe they are less-stressed with their deadlines. Bottom line, media - when dealing with markets, finances and lots of numbers, get a good proof-reader or better calculator before you go to press to millions of your readers. Bottom line, read your financial news with a skeptical eye.

Next blog: Wall Street’s Free Lunch - Diversification