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Winning in
Volatile Markets
Market
volatility is making investors dizzy. More and more frequently
we are seeing a notable up and down cycle in just a single
week. The rapid twists and turns make an investor despair
ever understanding the markets. A hint of a rally sends everyone
into the market and on the first hint of profit taking a group
of investors head for the exits. But more than an entry-exit
market we are seeing a rotational market. When bad news hits
a stock or sector investors run like the plague. Investors
don't generally exit the market but jump to a stock or sector
that is in favor… today. Tomorrow they may not be anywhere
to be seen, but for today they know what they like. Two days
from now they may not remember the stock's name. We've
seen this volatility over the past handful of weeks as money
moved out of technology and dot com stocks in favor of blue
chip stocks. Now pundits are saying blue chip stocks under
perform their lofty expectations. There seems to be an overriding
"need" to be invested in the stock market. With
baby-boomers needing appreciation in their previously non-existent
retirement accounts and the proliferation of 401k accounts
a larger number of Americans are in the market. During the
past decade $1.7 trillion have flowed into stock mutual funds
alone. In the 7 years since its inception, Ameritrade alone
has opened 7 million online accounts. Everyday brings changes
in the marketplace. Investors are being bombarded with a growing
stream of financial news from print, broadcast, and Internet
sources. Trying to follow the markets is like drinking from
a fire hose.
How is an investor to play the
markets? First, an investor needs to realize individual
stocks and sectors have increased in volatility. This is the
way it is. An investor needs to keep in mind those sectors
with the fastest growth will see the bumpiest roller coaster
ride. As you see gains in a sector it makes sense to trim
back your holdings and take profits as stock valuations in
a sector get lofty because they will likely return to more
reasonable levels. Buy stocks with real earnings in growing
industries. Buy and hold use to span a lifetime, now it
will rarely span a decade. Those investors who buy a diversified
portfolio of quality growth companies that have a vision of
where the world is headed should finish ahead of the pack.
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