Tuesday, October 18, 2011

Market Volatility

The blog Zero Hedge posted an excerpt this morning from Michael Higley's weekly "By the Number$" newsletter:

During the first 4 months of the year through 4/29/11, the S&P gained +9.1% (total return). From 4/29/11 to 10/03/11 (i.e. approximately the 5 months that ended just 2 weeks ago), the S&P 500 lost 18.6%. But in the last 9 trading days through last Friday (10/14/11), the stock index gained +11.5%. The net YTD result: down 1.1% as of 10/14/11.


Put another way, net-net, stocks have gone nowhere this year, but its been a helluva ride.

To me, this year's volatility illustrates the futility of trying to time the market. Others, however, continue to try to trade the market, despite the overwhelming evidence that most trading makes money for the broker, not the investor.

I continue to think that dividend-paying, large cap stocks are the only game in town for most investors who can take a longer term time horizon. I don't know what the market will do next week, or next month, but I find it hard to believe that over the next three to five years stocks will not be the superior asset class.

One of the more bullish market analysts this year has been Lazio Birinyi, but he wrote a piece in this morning's Financial Times modestly changing his tune.

Mr. Birinyi now describes himself now as being only moderately bullish. He is concerned about data showing an economy that is decelerating, and the possibility that the European and Asian markets will also drag on the US stock market.

That said, Mr. Birinyi would not abandon the market, noting that some of the bearish arguments that are currently making the rounds have been made for years. Abandoning the market based on current sentiment, as Mr. Birinyi notes:

I don't know how and when this will end. One clue might be to look for negative reports. On March 9, 2009, at the bottom, the Wall Street Journal's Money section headlined "Dow 5,000? A bearish possibility."

And one of the longest market stories in last year's New York Times - again at the bottom for markets that year - was subtitled "Wall Street tallies new losses with a bear market in mind."