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Did You Miss The Rally? Don’t Sweat It

12 May 2009 No Comment

If you follow the stock market, like me, you are probably amazed at the recent run. From the March 2009 lows, the broad indeces are up approximately 30%. Everyone wants to know, is this the start of a new, bull market or is it simply a bear market rally destined to crush the average investor once again?

My question to you is, did you miss the rally? My guess is that most individual investors did miss it. Pessimism was so rampant and the snap upwards so quick, that most people had a hard time believing in the rally until we were already up 25% to 30%. My point here is that you should not worry if you missed the rally.

I missed the rally, and I am completely fine with it. I am looking to be long many stocks that I view as high quality investments, yet I’m still waiting. If I were to let my emotions guide my investing, I would have bought into these stocks over the last week or two; frustrated that I had missed the quick uptick yet fearful that I would miss out even more. Are you investing because you are scared you are missing the run? This is a very dangerous game to play.

Chasing a rally can often lead to terrible results for average investors. If you watch TV right now, you have the Jim Cramers of the world talking about green shoots and telling you that this rally has legs, so you should buy. Here’s the thing… it might have legs and it might go higher. Even still, I won’t be worried about missing it because I am sticking to the strategy I have in place for the near term as well as the long term.

Fundamentally, I don’t buy that our economy is improving. Bank profits were exaggerated by accounting changes and one-tiem asset sales. Unemployment continues to go higher and consumption will continue to get lower. Bear market rallies are very normal in bear markets and some can go as high as 50% from the bottoms. The seasoned trader who can make a quick buck can often profit from these rallies but the investor at home who is worried about missing the boat usually gets hurt badly.

Here’s my advice… if you think our economy is sound and you don’t care about near term fluctuations, I won’t discourage you from buying into the stock market at current levels. If you are however simply trying to avoid missing any further quick run up, then do yourself a favor and stay on the sidelines. The easy money has already been made. The people buying at current levels are either traders (who have one foot out the door already). Do what you think is right, but be cautious. I’m shocked at how irresponsibly optimistic the folks on TV are right now about our economy and stock market. There are still a ton of headwinds in the now and in the near future.

As for Investing 101, never invest money because you feel like you are missing the boat. There were plenty of investors who did this at the height of the dot com bubble or the real estate bubble. Making a high return over a few days or weeks is never as easy as it may look or sound during rally times. Remember, someone always gets slaughtered when a rally ends. Be careful that it isn’t you.

As for me… I’m mostly cash still. I’ve missed out on a nice return during the last 2 months, but the difference is that I’m not upset about it. Time will tell if I’m right. Good luck.

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  • Norm said:

    It's now September. Ouch.

  • Laura said:

    I think it is just a crisis … 🙁