US Stocks Market Index, Buy Sell or Hold

The highly touted bailout bill passed last week and the stocks reacted by falling. The most recent 3rd quarter was brutal for even the most seasoned investor. During the last year, from October 1, 2007 to October 1, 2008, the US stock indexes are down about 30%. WOW, the average investor lost about 1/3rd of their money during the last year.

The news on TV and in the newspaper is fear and panic. Non-financial experts are talking about how bad things are things can get worse. When these experts talk about how bad things are and a feeling of panic is in the news it typically means that we are about at a market bottom.

At a market peak the news will be how wonderful things are and people will have a normal reaction of buying. At a market bottom the news will be how bad things are and people will have a normal reaction of selling. If the object is to buy low and sell high, then this strategy is exactly wrong.

What is best choice now between buy, sell, or hold US stocks? The answer is hold and if you have some cash that is not needed within the next year do some buying. Do not sell just for the sake of selling. While it impossible to know the absolute bottom, going down much further would be rather unprecedented.

What is the reasoning behind holding:

1. A 30% drop historically represents the low end of the distribution for the US Stock market.
2. The average length of a bear market is about 14 months and we are at 12 months.
3. The current financial data does not support the US Stock market going down further. A warning is that when the market runs on emotion it is very difficult to know the bottom.

It makes sense to sell to obtain a tax break in certain accounts. This is best done by buying a similar asset and holding it for 31 days or more before repurchasing the asset. It may also make sense if you need cash in the near future.

When fear and panic exist keep your wits about you. You want a diversified portfolio of excellent mutual funds that can weather a financial storm.

If you need assistance with building such a portfolio, contact an investment professional.