As Of: September 7, 2001

New Market Lows Signal Opportunity

It Is Time To Implement An Investment Plan

    My grandfather used to say, "I buy my straw hats in the winter". Considering the current state of the stock market, it is time to start buying. Unfortunately, the fact that a stock is cheap says nothing about the timing of when the price will go up. But historically, the best (and safest profits) have been made during the early move of a new up market. If a position is built while a security is bottoming, the strategy is to scale out as the price goes up and move on to the next opportunity. If the position is being built after the price starts going up (as in momentum investing), there is a risk of missing the strong part of the move and riding the position over the top into a new decline.

    Not all stocks are cheap. And some of the cheap stocks won't survive long enough to benefit from an economic recovery. So now is a time to be very selective. While the tech sector has already collapsed, the consumer is still in the early stages of recovering from the spending disease. Retailing, homebuilding, autos, consumer durables, and related categories have further to fall. On the other hand, as bleak as things may ultimately look in the tech sector, the internet is not going to disappear. People will continue to use computers, and there is going to be tremendous growth in servers and the need for data storage. Wireless communication is also the way of the future. The companies that survive in these industries are going to have tremendous prospects down the road.

    I am short-term bullish. The stock markets are oversold and due for a bounce. I am medium term cautious. We are still early into a long hard recession. But I am optimistic for the long run. Technological advances, productivity improvement, changes in demographics, globalization, and yes, the internet, are all reasons to believe there are tremendous opportunities for corporations in the future. This presents the investor with the challenge of positioning for a short-term bounce and a long-term recovery while preserving enough strength to ride through what could be a very vicious intermediate downdraft. This is an excellent environment for hedging with options and short selling. For those who are not in a position to hedge, conserving some cash and engaging in dollar cost averaging is an appropriate strategy. Freezing up in fear is not an appropriate strategy. Volatile markets are rife with opportunity. Develop a plan, and take action.