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Lindley Estes is a business writer for The Free Lance-Star and Fredericksburg.com. This blog is on Fredericksburg-area business. Send an e-mail to Lindley Estes.
If you’re waiting for certainty, you shouldn’t hold your breath
"INVESTORS are waiting for more certainty before jumping back into stocks."
I hear that line, or some variation, all the time on financial news stations such as CNBC. The commentator is typically explaining that low investor enthusiasm for stocks is driving down the markets.
The explanation could be accurate, as markets drop if there are more sellers than buyers. But the line always makes me shake my head.
Do investors think there will be some magical and clairvoyant time on the horizon when everything in the future will be crystal clear and obvious profits will be ripe for the picking?
The fact is there will always be uncertainty about the future, and it is folly to wait around for that moment in time when certainty arrives. As Ben Franklin said, only death and taxes are guaranteed in life. To some extent, investing is a calculated leap of faith.
Jason Zweig, the talented financial writer, recently had a column in The Wall Street Journal on the current market woes. The main thrust was that investors should embrace bear markets, as they’re the only time that offers true bargains.
"Could things possibly get worse?" Zweig writes. "I don’t know, but I am an optimist–so I certainly hope things do get worse. Nothing else should satisfy an intelligent investor."
Zweig goes on to write: "If you are still in your saving and investing years, a bear market is a gift from the financial gods–and the longer it lasts, the better off you will be. Instead of running from the bear, you should embrace him."
Zweig urges investors to diversify, keep costs low, and buy and hold sound investments.
And most importantly, he urges, drown out the noise–such as the people telling you to wait until the future is more certain.
The elusive bottom
Last week in this column I wrote about another common topic on financial television stations–the search for the market bottom.
Market bottoms are about as easy to identify as certain futures. Yet much time and ink are spent searching for both.
Barron’s makes the case in its July 14 edition that a bottom is near in the housing market. The magazine shows that home sales are rising, and prices are stabilizing.
Barron’s also argues that congressional legislation could stabilize the subprime market and that a government takeover of Fannie Mae and Freddie Mac would ease concerns. A growing population and continued job creation should increase demand, while fewer new homes will reduce supply.
"The available data suggest the scary dive in home prices soon will be over," Barron’s concludes.
They may well be right. But if they’re wrong, here’s one thing you can bank on: Someone else will soon call a new bottom.
And, eventually, someone will be right.