Buy, sell or just be patient?
February 3, 2012
Some reports are claiming it was America’s re-emerging manufacturing industry that made January the best first month of the year in more than a decade. Other reports saw the European Debt Crisis cool down. But Park City finance investor and The New York Times money blog contributor Carl Richards begs to differ with that type of prognosis.
"I’ve been in this long enough to know that the stuff you hear on the news is not necessarily an indicator for the market," Richards said. "We don’t know why the market did well in January, and last month’s performance has no indication on next month."
When headlines started to appear declaring last month the best January on record since 1997, people were getting excited. Does this mean the market is rebounding? Maybe for good? Does a good January mean a good year?
"We should hopefully have a plan in place that doesn’t involve making changes based on what the markets actually doing in the day to day, month-to-month or even the year to year," Richards said. "That’s where we all get into trouble."
Richards admitted that his advice is on the dry side when it comes to investing, and it turns out it’s the kind of advice we’ve all heard before. And what the stock market is doing today shouldn’t necessarily be an indicator that now is the time to buy. In fact, just the opposite.
"I have to tell people to hold their horses," he said. "If you sold in the credit crisis, just think about that logic. You sold when it was low and now we’ve had a few good years. Yes, January was good, but to buy now sounds like selling low and buying high to me."
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What success in the stock market game looks like is a waiting game where the winner is the person with the most patience, Richards said. A solid financial portfolio should have a clear plan in place, not a constant buying and selling war.
"What we do know is that stocks are better than bonds, and bonds are better than cash.
There is a temptation to make a lot of what’s happened for January, and it is a good sign.
Just don’t make changes on your personal financial plan on that fact."
What the market was up to in January:
Opening day for 2012, Dow Jones reported gains 179.82 points. The market went through a slow and steady growth period of less than 100 points per day for the next 19 days in a row.
The Dow Jones Industrial Average rose 3.4 percent in January and the Standard & Poor’s 500 gained 4.4 percent, the best performances for the first month for both since 1997.
According to an Associated Press article, online brokerage Scottrade said stock buyers outpaced sellers among its clients from Jan. 3 to Jan. 23. Volume was also 16 percent higher than the 2011 December average.