While I am normally an optimist, when there appears to be a large majority of people shifting into “recovery mode”, I begin to get a little skeptical. This is because historically, fortune doesn’t favor the people who follow the herd. To quote Warren Buffet, “be greedy when others are fearful and fearful when others are greedy”. This isn’t true all of the time, but it should be enough to stop and make you think.
Stocks have had an awesome March, rising for the 4th straight week. While this doesn’t preclude a fifth, sixth and seventh week, keep in mind that economic recovery is not just the stock market (especially to somebody who hasn’t had a job in a year). The stock market is usually a leading indicator and if the stock market is recovering, usually the larger economy will as well.
Some things to keep in mind though.
1. Valuations at some of the larger stocks are still high.
2. Banks still have some toxic assets on their hands.
3. The number of jobs lost vs. number created is still higher.
4. The dollar is showing signs of strength despite the current (and growing!) United States National Debt. When the dollar strengthens, it reduces purchasing power for foreign countries (if their currency is weaker, they have to purchase more) for investing in the U.S..
5. Credit is still not flowing (not entirely true, but it is still flowing like Molasses.
These are just a few things to keep in mind as you think about your investments. Don’t just blindly follow the herd. Continue to make informed, intelligent decisions when managing your investments.
We may be in a recovery (I certainly hope so, and all indicators point to it), but remember that nothing is certain, and you don’t want to get caught without a plan should something occur to change the current course of things.