"Trying to peer into the murky future is not the way to go. The market has a mind of its own and often loves to climb a wall of worry. For example, last week's market action saw the Nasdaq jump 4 percent and the S&P 500 rise 2.5 percent in the face of highly negative news: fresh headlines on the Iraqi prisoner-abuse scandal, persistently high oil prices and mixed economic data. That same week, one of our favorite industry groups, home building, was hit with seemingly bad news when the Commerce Department reported that sales of new single-family homes fell 11.8 percent in April. . . . So, what happened to the home-building stocks? They put in their best rally in weeks."
The Prudent Speculator
Laguna Beach, Calif.
"Among bad investment strategies, few have cost investors more than averaging down. Buying more of a stock simply to lower your average price is stupid. . . . When your portfolio takes a hit, don't fixate on whether you are ahead or behind on individual stocks. You're not getting paid based on winning percentage. What matters is whether your money is invested in the best stocks. Ask yourself if you would buy a stock for the first time today. If the answer is no, sell it. If the answer is yes, by all means buy it. But realize that laggards tend to remain laggards. On average since 1990, investors would have done well buying 12-month leaders after one- or two-month declines. But buying 12-month losers was a poor strategy."
"Because earnings are growing rapidly, the market will eventually break out to the upside. Possible short-term catalysts that could lift the market are lower oil prices and the Iraqi government turnover going better than expected. Both are tough to time, but they will eventually occur. Even if . . . negative factors persist longer than expected, it is important to keep in mind [that] how the economy fares in the quarters ahead and the corporate earnings generated during this time will have a much greater impact on stock prices over the long term."
Walnut Creek, Calif.
"I suspect we are in a long-term re-valuation of the stock market indexes. These re-valuations can take 10 years or more. After being burned by over-optimism in the late 1990s, many investors are cautious, wary and sensitive to valuations. Some refer to this as a long-term or secular bear market. . . . A long-term bear market, however, usually is punctuated with mini-, or cyclical, bull and bear markets. We've had one of these cyclical bull markets since March 2003."
Bob Carlson's Retirement Watch