10/9/2010 Historical Post

From: Dale Beals <dpbeals@comcast.net>
Subject: My thoughts on the markets…
Date: October 9, 2010 10:07:23 AM CDT

To help you stay well-informed, I thought I’d send along a recap of the key events that influenced U.S. and global financial markets during this past week.
Feel free to e-mail or call me after you’ve had a chance to review it.

http://www.mfs.com/wir

My Own Thoughts…
A few months ago, I suggested that the doomsayers and the wild optimists might both be frustrated for awhile and the market might just bounce up and down in a sideways range for several months. That scenario played out exactly. Just a short time ago, we were told that September was historically the worst month for the market, and we were in for big trouble. Everyone who believed that history would repeat sold in August and Sep 2010 turned out to be very good for those with a disciplined approach (or those who were lucky).
In fact, the US stock markets broke upward out of the range they traded in over the last few months during September, although we still haven’t matched the highs of earlier this year. Now what?
I expect more sideways, up and down trading ahead, with some big moves related to the upcoming elections. I could be wrong, but I’ll be surprised if stock go straight up from here. Short term equity market moves seem to be dominated by investor emotion, while the longer trends seem to relate to expected profits over time. The elections will affect how investors feel short-term and their perception of future market opportunities long term. Look out for a bumpy ride.
Cautions:
1. Don’t chase gold by over-allocating to the precious metal because of how it has done over the last 10 years.
2. Don’t give up on equities and load up on bonds because bonds have done so well over the last 5 years. Remember the last 3 quarters of 2009. Very few (including me) predicted that rebound in stocks.
3. Don’t stay trapped in a “strategic” asset allocation that someone recommended at some time in the past. Markets change. Rebalancing to a specific allocation without looking at how markets (and risks) have changed can be dangerous. Just look at 2008. A “safe” 50% stock/ 50% bond allocation got hammered when markets changed.
4. Don’t fall for those who say that because they have smart people, they can predict the future and therefore make you a lot of money (either by picking stocks or by picking asset classes). Many brilliant hedge fund managers have suffered this year in 2010 making those types of bets. I had a subpar first quarter this year because I bet against big US banks.
5. Don’t fall for sales pitches that would have you buy some fund or manger based on a stunning track record. Often that record is too good for anyone to achieve consistently over time. There aren’t many Warren Buffetts, and he has some pretty big advantages.
Recommendation:
Stay disciplined. Stay diversified. Stay flexible. Stay with an advisor or asset manager who is in constant communication with you and who spends more time thinking about your account risk-adjusted performance, as it relates to your life, than about getting their next client.
Please call me at 615-414-1942 with any questions or comments.
Best Regards,

Dale