This blog is written weekly by Dock David Treece, a registered investment advisor with Treece Investment Advisory Corp. It is meant to share insight of investment professionals, including Dock David and his father, Dock, and brother, Ben, with the public at large. The hope is that the knowledge shared will help individuals to better navigate the investment world.

Sunday, March 29, 2009

Wall Street not for faint of heart

A bear market is truly something to behold. When the markets decide to change direction, they can turn on a dime and there’s just no stopping them.

In the past week or two, stocks have been on the up and up on good economic news. Headlines driving the market higher include higher orders for durable goods, rising crude oil prices, higher-trending homes prices and existing home sales. Thankfully, unemployment is one of the few categories not heading higher as it seems to be taking a break from its recent surge.

Unfortunately, this market action has led to higher gas prices at the pump, recently topping the $2 mark, and has also been marked by a declining dollar. This is due to several factors. First, as we have argued and the international community is coming to realize, is that government stimulus plans have a price: inflation. Second, while the dollar lately has been a relative safe-haven currency as many international investors have felt the United States would be the first country to emerge from the global economic mess, it seems obvious that their sentiment is changing.

We believe that many investors have been unable to take advantage of this recent rally, frozen in place on the sidelines waiting for proof that good times have returned to stay. As we have often argued, the vast majority of investors (and investment advisers, for that matter) react to market conditions, instead of anticipating. Unfortunately for them, there is no money to be made on yesterday’s news. Investors who wait for proof of good times are sure to end up making moves that are either wrong, late or both. And these investors are in good company. Current estimates have counted somewhere in the order of $5 trillion sitting on the sidelines waiting to get back into the market.

Investors need reminding, as do industry professionals, from time to time, that this business is not for the faint of heart. Traders spend lifetimes honing their craft and can still be humbled by the market in mere moments. The financial markets are not a playground, nor are they a nursery school. Consider it foreshadowing that at one end of Wall Street is a cemetery, at the other is the East River. This is not to say that investors should renounce stocks and bonds immediately, but be aware. And please, consult a professional. It doesn’t guarantee success, but it certainly can’t hurt.

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