Monday, March 23, 2009

So, What Do You Think the Markets Will Do?

People ask me what I think the market will do on a daily basis and many look at me in search of some hope. I tell them that I accidentally smashed my crystal ball on the way to the office and therefore I cannot tell the future, but that's not really the truth.

We as traders after so many years, have been on the roller coaster long enough to "know" by our experience how the ride feels, the speed, the wind, the turns, dips and highs are anticipated before they actually happen. Those of us who are tuned into it's music, move with it's rhythm, instantly notice the beat change. Therefore we have an advantage over the people who put their trust in someone else to manage their investments and therefore, when asked, I believe we have some obligation to answer truthfully and of course as you know that's not as easy as it sounds.

Truth is that although I called the market correctly for everyday last week, and I have a pretty good idea about the next couple of days, I don't really know what will be 6 months or a year or years from now. Given history, as we've known it, the markets are better at going up than down, so the likelihood of gain is far higher than a loss in the long run. I am still not answering their real question.. the one that they are really asking which is: "Will my investments come back to their former value (soon)?" Therefore, I propose that the truthful answer to their question will have to be: "The markets will probably not recoup their heights for a couple of years at least and it may never do well enough for them if they don't learn to participate in managing their own investments".

We who lived through the .com boom and bust know that companies like CSCO, MSFT, EBAY, SUN, were at prices that they have yet to even come close to again. They are still good, well run companies and they are still large players in the industry, but those investors who held on to their shares bought at $150 +/- are nowhere near in recouping their loss from them and they never will. Currently there are people holding on to GOOG from near $700 waiting for a comeback. Can it happen? I suppose so; but realistically? I doubt it. (apologies to Google lovers)

Add to the scenario that the current elected government has vastly changed the playing field already and given their current path, we are headed for regulations yet unheard and most likely to a very unfavorable atmosphere for companies. When the government decides which innovation is in favor and which is not, they in effect kill free markets, and kill the stock market as a result. So it could be that we've seen nothing yet, about this downturn.

On the other hand, Americans are (hope not just were) a resilient people and can stand up to fight when forced, so yes there's hope of a strong turnaround if we keep our resolve.

Regardless which, the truth is that the trillions that were lost in the past couple of years will never be returned. Therefore you can't spend too much time wishing it were different. It's a little bit like hanging on to the past... nice memories, but you'll never be there or look that way again, so you better enjoy the present and look to what you can make with it to grow your future.

Of course now that I've found another crystal ball at the flee market, I can safely predict the market movements again. The Gypsy who sold it to me looked honest; so I can say that the markets will continue their merry roller coaster rides no matter who the builders or the riders are. Remember to keep all limbs inside the car & safety harnesses on.

As you leave this lesson in trading and life, know that it's never old money that makes it; it's new money that will build new wealth. Remembering that in the cycle of things, this is an opportunity for a beginning.