Investing with the Market—Section 13
There is an old Wall Street saying that “The Trend is Your Friend.” This is particularly true for mutual fund investors who profit primarily from major market advances. During a bear market, the great majority of stocks lose value. Stock based mutual funds are made up of stocks so they also lose value.
As a mutual fund investor, you have two alternatives when faced with a bear market. You can either ride it out and wait for a recovery or you can get out of the market when it appears likely that the primary market trend has shifted from up to down.
You should keep in mind that riding a bear market to its bottom and waiting for a recovery can be frightening and painful. During the last bear market that lasted from 2000 until 2003, the S&P 500 lost about 45% of its value. The market snapped back relatively quickly and the S&P briefly exceeded its 2000 high in 2007. There is no guarantee, however, that this will always be the case. As I mentioned previously, if you bought Dow Jones Industrial Average in 1929, you would have had to wait until the 1950’s to break even.
You also have the option of leaving the market either entirely or in part when it appears likely that the primary trend has shifted from up to down. This will require more work on your part. You will need to monitor your investment and stay informed of market developments. You can get a feel for the direction of the market by reading financial periodicals, such as the Wall Street Journal, Investors Business Daily and Barrons. There are also many free or partially free financial website such as Yahoo Finance, Big Charts.com, Stockcharts.com and thestreet.com that provides analytical tools and commentary that will help you interpret market conditions.
You are also welcome to contact me via email. I will respond to you the same day with my opinion as to the market direction. When it comes to determining the direction of the primary market trend, I am far from infallible but I am active in the market and have been for more years than I care to remember.
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