SCOTT REED: In volatile market, keep eyes on long term

This is the time to turn on CNBC, Bloomberg and all the other financial media.
There is someone out there who is saying exactly what you are feeling, no matter which side of the table you are on.
That person will have a very impressive resumé and will talk as if he or she knows exactly what is going on with our current markets.
There are some very impressive people who are saying that we will have a double dip recession and the Dow will go below 6,000, significantly lower than the drop that ended in March 2009.
They also have all kinds of figures to back them up so that you will feel pretty dumb by the end of their segment if you disagree with them.
There are also some really smart people who say that the Dow is going to continue to rise and rise fast. They also have very smart things to say and a lot of impressive figures to back them up.
They will also make you feel stupid if you don’t agree with them. And with all the volatility lately in the stock market, it’s easy to see why both sides have a large following.
I know people who diagnose their health problems when they feel bad and then search the Internet until they find a doctor who will agree with them.
That’s the kind of market we are in right now.
The stock market is having very big up and down days. Just in the last month we have had the Dow Jones Industrial Average down 1,000 points and up 500 points.
Swings of 200 points are getting to be fairly common. Every time we have a big down day it makes us want to believe in the guys who are saying the Dow will drop under 6,000 and every big up day makes us want to go the other way.
Let me tell you what I know about this type of market.
The swings come before the explanations. It is easy to look back at the day and see what triggered the moves, but what triggers a move is not always what caused the move.
I think it is much simpler than we want to believe.
Let’s look at it this way. There are investors who, with all the gumption they could muster, managed to stay in the market at its lowest last year.
They were thinking about how they had lost so much market value that they would have to postpone retirement, get another job or sell their lake house.
But they hung in there and now they can see the finish line again.
Now, they may not have been made whole at this point but they have rallied enough to have regained their lifestyle.
So as the market rises they are looking for opportunities to take their investments out of the equity markets and lock in their gains.
When the market has a big day, they start taking their money out … and the market drops.
Then you have those other investors who took their money out of the markets last year when everything looked so bleak.
Now the equity markets have rallied more than 50 percent and those investors are looking to get back into the market.
They are looking for those spots that they feel they can get into the market at a good value.
When the market drops 500 points they see the spot they have been looking for … and they buy. That, of course, sends the market back up.
This can go on and on and on. It will take a while to weed out these investors on both sides of the table and until we do I think we will see very volatile markets.
That’s just the way it is.
I know I could sound much more impressive if I would just talk about the problems in the Euro markets and their effect on U.S. stocks or the effect of the health care bill on the stock market.
But I have always found that the short-term fluctuations of the markets are much more about investor psychology and much less about fundamentals.
So don’t get pulled into the game of Monday morning quarterbacking the stock market.
Understand that much of what is going to happen in the next few months won’t make fundamental sense and keep your eye on the ball.
If your long-term goals are intact, don’t let your emotions get the best of you. Be smart.

Scott Reed, CIMA, AIFA, is CEO of Hardy Reed Capital Advisors n Tupelo

Scott Reed

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