Why The Stock Market is Irritating Me!

March 27, 2012 9:53:00 AM

First, let me begin by stating, I realize the title of this piece may be a bit confusing for some. After all, the markets are up very nicely since bottoming in October of 2011.

For those of you who have followed my articles over the years, of course, this article should not be surprising!

Why am I irritated?

Because after experiencing a sizable correction in 2011, the markets have not stopped going higher since bottoming in October of 2011.

For those who may not know, we are a firm whose Investment Philosophy and Strategy includes the fundamental belief in investing in quality companies over time. As part of that process, we look forward to corrections in company's stock prices and or the market so we can take advantage of buying companies, on sale.

Unfortunately, it is getting extremely difficult to take advantage of buying companies on sale when they keep going up in price almost every day!

I realize for some reading this blog, the idea of being mad because your stocks are going up in price may seem a little odd... Okay, maybe really odd!

However, as history as shown, if you are a long-term investor (yes, long-term is greater than 3 months or 1 year), corrections provide great opportunities to take advantage of buying companies on sale.

Of course, one must have the flexibility in their portfolio to take advantage of sales when the opportunity arises.

For those investors who continued to invest during the extreme volatility in the markets last year, you have probably been rewarded for, sticking to the knitting. Congratulations!

However, for the people in the group of approximately $9 trillion still sitting in cash, prudence and patience are extremely important when the markets have moved up as they have recently. Having an appropriate investment philosophy and strategy are critical.

Ironically, I always find it interesting when investors decide that once the markets have had tremendous moves up, they then decide it is time to buy and go all in. Frankly, the best time to buy is during the short-term corrections in the markets or pullbacks in companies you may want to own.

Remember, it is also during corrections where flexibility provides the opportunity to sell weaker companies and take advantage of stronger ones since they are on sale.

Of course, there are no guarantees that if you invest in a stock after the price has gone down, you will see it eventually move higher. However, statistics show, if you have a well diversified portfolio of companies, you increase the likelihood of success in watching your portfolio grow over time.

Lastly, of course no one knows when the next 5%, 10% or even 20% correction will happen, but it WILL happen! Therefore, as part of our strategy, a process of strategically cost averaging is prudent and warranted. Meaning, we may start buying small amounts of the companies we want to own and once we see the nice correction taking place, become more inclined to increase our position in the company or companies.

Remember, investing is a PROCESS. It is not something that happens over a short period of time. Be patient and prudent and of course, invest with clarity!

 

 


Mark Pearson

Mark Pearson

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