The economic news that was released yesterday morning and today, showed that the U.S. economy continues to grow, albeit at a slow and uneven pace. The data has been lumpy of late, with certain parts of the economy showing stability and growth (manufacturing, housing starts, automobile sales), whereas other areas are still showing signs of concern and could possibly affect the economy going forward (high price of oil, still elevated unemployment, higher prices for consumer durables, government spending, and exported goods to Europe).
My point in all this is simply that while I continue to believe the U.S. economy is recovering from the recent recession and is in fact slowly growing, we are still not out of the woods. My concerns are still mainly focused on Europe and the financial issues they are facing, tensions in the Middle East, and the elevated prices for oil and consumer durables (which is just a word for whatever we buy at Walmart, the grocery store or the mall). While I do have those concerns (I'm trying to be glass half full here), yesterdays housing numbers were better than expected, unemployment last month dropped down below 9% for the first time in a year, and today's Chicago PMI numbers were the best in over 9 months (PMI is "Purchasing Manufacturers Index" which is an index that shows the amount of manufacturing that was done in comparison to last month).
So why did I title this post "Sell The Good News"?? Well, when I'm trying to effectively manage money or invest, I always try to position my investments in a manner of anticipation so I'm not "late to the dance" per se. Wayne Gretzy, who is a hall of fame hockey player, was quoted as saying that he always "skated to where the puck was going to be"; by this he meant he didn't skate or go to where the puck was, but where it WOULD be. Well this is what I try to do when I approach the markets and stocks. If you always make your investment decisions based on day to day economic or earnings releases, then chances are you are going to be just like everyone else who invest their money based on the here and now, as opposed to what could possibly happen.
I know this may not sound right, but historically stocks top out and begin to correct on good news and they bottom out and rally up on bad news. For example, when the markets were in free fall following the collapse in the housing market and in the U.S. financial system, anyone invested lost quite a bit of money. However, for those individuals who made it through the downturn and started buying stocks when things got really ugly, they made a ton of money over the following year. You can also look back to the period between 1996-2000, when investors saw some of the best growth in the markets ever. If you had bought stocks in 1995, following some pretty ugly economic times, you would have made a ton of money. HOWEVER, when the year 2000 came, and everyone thought the technology sector was the place to put all your money, if you stayed invested you would have lost all the money you made in the previous rally. My point in all of this is to always be mindful of the longer term picture and try to skate to where the puck is going to be. My longer term forecast remains to be that I think we will continue to see the U.S. economy and the housing markets stabilize and slowly grow over the next year or so. I still have my concerns, especially relating to the high price of oil and the developments out of Europe and the Middle East, but all in all I potentially like what I see down the road.
But as for right now, I would sell the good news, and lighten up on your stock holdings. The markets have been bumpy so far this year but have performed somewhat well, so why not take some money and move it to the side and wait for the markets to sell off a bit and come down in price. Remember, stocks don't move up (or down) in straight lines, hence why it's been referred to as a rollercoaster...it's okay to get off every once in a while and go get some ice cream or an elephant ear, because at some point you can always get back on (btw that was a reference to being at a state fair!)
