Fred Voetsch

The Road Ahead for Investors

On Mar 24 02:27 PM Chris B wrote:

> Good points. It was the peak, not now, that was the prime time to
> move to more conservative assets. Near the bottom is the prime time
> to take on risk.


Well...yes, but where's the bottom? If you invest in the stock market here and it goes to 1,500 and doesn't come back to this level for 15 years then you have a problem.

A bottom 50% lower than the top does not provide for a huge rally while a bottom 90% lower than the top is almost certain to give a big bounce, in percentage terms. Once again I ask: where's the bottom?

At this level there is no great upside and yet the downside potential is huge, in percentage terms. I can make a great case for the Dow going to 1,200 and not reaching 7,000 again for ten years and I will back it up with a lot of data. That does not mean it will happen but have you seen another period in history where an entire society has been as leveraged up as we are?

Do you want to lose all your money AND your job? I would say it is wiser for most to hedge to the downside and if the economy improves you might not care if you lost a bit of your investments while if it gets much worse you then have some backup.

All I am saying is that "we can't go much lower" is not a wise investing strategy. Each of us should consider various possible scenarios and act accordingly and not just rely on hope or recent past experience or on the advice of people who only want to sell us something.

The Road Ahead for Investors

"Markets have historically cycled between high and low risk tolerance—with investors leveraging or de-leveraging themselves depending upon their outlooks."

And then there are periods where investors deleverage based upon NEED rather than outlook. If our economy is at a bottom and things begin to get better then you can believe that investors will leverage up again but if you believe that unemployment will grow and the economy will continue to struggle then the deflationary spiral will cause a NEED to deleverage from investments (to pay bills) and from housing and pricey vehicles (to reduce debt) and from all sorts of other things we don't really need that we thought, just a few short months ago, that would could not live without.