Over the weekend and this morning, I've been reevaluating my investment thesis as we head into the end of the year. As I've mentioned soo many times, there are numerous headwinds that investors have been facing over the past couple of years, which have caused me to be wary of the stock market and therefore conservative in my approach to managing money. These include:
- a depressed housing market
- dislocation and lack of leadership out of Washington
- heightened unemployment
- sluggish growth in the economy
- volatility in the markets which has caused the average investor to avoid stocks
- uncertainty regarding the financial stability in Europe
Throughout the course of 2011, I have been cautious (and underinvested) in the stock market for all of the reasons mentioned above. While all of these headwinds are still in place, I am finding glimmers of hope when I look towards the first quarter of 2012 and some of the positive developments that we could see come about.
While the housing market remains depressed, some areas of the country are starting to see slight home price increases, and as long as the market remains somewhat stable, we will be able to inch towards a more favorable outlook for housing. Unemployment is of course still rampant, and I may be grasping for straws on this one but at least we are not seeing a continued uptick in the number of new unemployment filings. Volatility is definately still evident as seen in the constant swings up and down in the market over the past year (similar to a roller coaster hence the title of my blog), but I got to thinking over the weekend, maybe now is the time to start thinking about being somewhat more positive on stocks. My reasoning behind this is the thought that if the average investor (also individuals with 401k accounts) is sick of all the random behavior and lack of direction in the markets, and they are consequently underinvested, couldn't that mean that now is a good time to go against the crowd and start allocating more money into stocks?
I am a contrarian investor by nature in that I am always mindful of taking the other side of an issue or examining what "every one else is doing" because in truth following the crowd is not the way to succeed in the market (or life for that matter not to get too deep). As I've said before just look at the housing market. When everyone was buying homes and flipping them and thought that real estate was the best investment ever, a great deal of people bought at the top of the market, and therefore are upside down on their mortgages or are stuck with a house that is not worth as much as it was 4 years ago. So, with my contrarian hat on, if most people are conservative with their investments and don't own a lot of stocks (or mutual funds), maybe it might be a good time to start looking at doing so...
I'm certainly not saying that everything's rosey, far from it, but I am starting to to lean more towards being positive on the markets as opposed to being soo negative as I've been for quite some time now. I'll write later about some of the positive developments I see taking place which cause me to be somewhat more upbeat on the markets going forward.
