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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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