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Expectations, Past, Present, and Future

One of the worst sins an investor can commit is to try to force the market to do what they want.  Because no matter how much you, hope, desire, or plead, the market WILL do what the market is going to do.  Itís important for an investor to recognize what the market IS doing and get in synch with what itís doing.  The only reason the market is going against you is youíre on the wrong side of the market.  The same is true for our expectations of the market.  During the last six months of 1999 the market was steadily moving higher.  All sectors were participating in the rise with technology and Internet stocks leading the way.  If your expectations were for the markets to hand you a 10 percent gain each month you were right on target.  If you expected that same result from the markets after February 2000 you were just fooling yourself.  The investor that expected to make money in 2000 by only holding long positions may have been disappointed and poorly prepared to make the best of the situation that was handed to him.  The investor ready to play the short side of the market did well in 2000. Observing the market closely will help you to discover the expectations that are reasonable to hold.  Is the market trending in a certain direction?  

Is it moving rapidly of at a slow rate?  Is the predominant trend of the market up or down?  Is the market trendless?  Is the market stuck in a trading range that it canít seem to get out of?  What seems to be most affecting the markets response? 

     The markets currently appear to be ending a down trend and moving into a trading range where we will probably see it move within a 200 to 500 point range.  If the long-term buy-and-hold investor has an expectation to receive a significant return on his portfolio in 2001, he probably has an unreasonable expectation.  This year we are likely to see markets move up a couple of hundred points and then down again.  The modestly slower economy is going to put a cap on the earnings companies will report, and thus put a cap on how far share prices can rise until earnings start rising.  For the investor who expects the market to swing up and down this year and is prepared to play the short-term long and short sides of the market is likely to be in synch with what the market is handing us.  What should our future expectations be?  We had better not believe the NASDAQ will run back up to 5,000.  It will be unreasonable to believe we can just buy and hold shares in defensive stocks because they will sometimes be the darlings of investors and at other times they wonít.  Expect short-term upward swings in tech stocks, followed by short-term declines in tech stocks.  During the up swing money will leave defensive stocks for a day, or a week or two, only to return again on the next decline.  Donít expect every stock to go bankrupt, nor to climb back to their March 2000 highs.  If you can get a couple percent per week gain this year you should be ecstatic.  Itís not the return you received in 1999, but itís what is a reasonable expectation for the aggressive short-term investor at this point in time.  Looking forward, it will be later in 2001 or early in 2002 that we will finally see year-to-year earnings reports showing growth when compared to the current economic weakness.  Between now and then weíll just take in what the market is handing us and try to identify the best strategies to make money. 
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