Jonathan
Pond's Investment Commentary
and
Smart Money Tips
For
the Week of October 6 to 12, 2008
Third Quarter Post Mortem
The average stock mutual fund lost almost ten percent over the third quarter. Most of those losses were suffered in the month of September, which was one of the worst months in stock market history. Only two of the major stock sectors made money for the quarter, health care and real estate. Foreign stocks fared even worse for the quarter. The average international stock fund lost over 20 percent as the weak U.S. economy spread overseas. Bonds also lost a bit of ground in the third quarter. Be prepared for a shock when you open your investment statements for September.
The Bailout Bill Passed Last Week, But Stocks Continued to Drop. What's Going On?
While the $700 billion should provide some immediate relief to the financial markets, many more challenges remain, and that was what the investment markets were reflecting. A global recession is at hand, and the implications are onerous. Unemployment and manufacturing reports last week were pretty bad.
That's the bad news. The question is whether there is any good news. Those who follow the stock market are at least mildly optimistic that a rebound may be at hand. There is an enormous amount of cash sitting on the sidelines, so any signs that the problems are improving may impel investors to move that cash back into stocks. Keep in mind that the stock market is always looking about six months into the future, so just the expectation that the economy is on the mend could spark a rise in stocks.
Smart Money Tips
Too much money in a single stock can be harmful to your financial health. No stock investor has emerged unscathed from this bear market, but some who had a lot of money in a single stock have been seriously hurt financially, including those who held big positions in stock of a lot of financial institutions that are bankrupt or near bankrupt. Even companies now thought to be financially sound may suffer a similar fate. So avoid having too much money in a single stock, no more than 10 to 15 percent of your investments unless you truly could afford to lose all of it.
This is a good time to eliminate any weak mutual fund holdings. Many mutual funds are having a tough time navigating these stormy waters. As tough as it may be to witness the carnage of the first nine months of 2008, you'll benefit from comparing the performance of the mutual funds you're investing in against the average for similar funds. If your fund is doing considerably worse than average, this may be a good time to move out of it and into a similar fund that's doing better than average - or into an exchange-traded fund that will at least provide you with average returns. Compared with most mutual funds, average has been pretty good over the past year. One source of comparative information can be found in the "Funds" section of www.reuters.com.
Food for Thought
Problems are only opportunities in work clothes.
-Henry J. Kaiser
Money Can Be Funny
Talking to politicians about the economy is like talking with eight-year-olds about sex. They have heard all the words, but they haven't a clue.
-Michael Aronstein