Adam on the markets

What a difference a day makes. Yesterday was gloom and doom. Today the markets bounce back. It is really hard to keep up with how the talking heads want us to feel about the markets so I have stopped trying. If you tuned in on Monday you would have thought that a huge correction was inevitable. And so they talked us through a 2.5% decline only to watch it made back in part today.

The market is starting to recover and that is a bad thing if you are a trader. Traders make money on volatility and that means the market must whipsaw around. The last few months of steady rising stock prices are not so much fun for traders who make money on the buy and sell side. All markets will have good days and bad days. In this market the good days will out-number the bad. Don’t be fooled into listening to the people that got it all wrong before, get it all wrong again. Hopefully you were not conned into selling yesterday only to watch it come back to today.

Be an investor and not a trader. I have never been very good at timing the markets so don’t take advice from me on when to buy and sell. However I can tell you this. Never in the history of modern economics has intervention ever worked precisely. Markets always swing too far to each extreme. It is fair in my mind that the stimulus has been overdone and the byproduct of that will be- rising prices, driven by rising commodity prices and therefore inflation.

My bets are on the things that a recovery is made of. Raw materials like aluminum, commodities like copper, industrials like Caterpillar. As I said before, I am not sure when the market will turn higher or lower. I do know that two years from now the market will be higher than it is now and therefore it is a place I want be.

Warren Buffet was quoted as saying, “Be greedy when others are scared and be scared when others are greedy”. Right now I am optimistic that stock and commodity prices are going to continue to rise because the economy is coming back. Since I feel the stimulus has been overdone, the market will have to reflect that as well.

So, ignore the pundits that talk about the markets out pacing themselves. Maybe they have. However since you invest with money you don’t need immediately, I am perfectly happy watching the investments grow over the next 2-3 years. Patient people will be rewarded handsomely.