Focus on the Long Term

I was playing basketball with my friend last week. We were talking about investments when he asked me to guess the market’s direction for the upcoming week—he was going to buy some options and wanted my thoughts before he did. I explained to him that I don’t gamble on the stock market’s direction—that’s what day traders do, and I’m not a day trader. Since that conversation, the stock market has increased by 6% in one week! If I could’ve guessed the stock market’s direction this last week, I would’ve earned a TON of money for me and all of my clients. But it’s not possible to see the future. Instead of guessing where the market is at any given moment, I look at (1) consumer confidence reports, (2) the S&P 500 PE Ratio, (3) the GDP-to-market value report, and (4) valuation models of individual stocks to get a feel for where things are. Based on these readings, the stock market looks like it is still slightly overvalued. This doesn’t mean that the stock market is going to tank—it just means that it’s more challenging to find deals in this market, and there may be some added volatility for a little while. I’ve been mentioning for the past ten months how it is essential to focus on long-term investing strategies when the stock market is volatile and declining. Since I don’t see that the stock market has a clear direction yet, this is my advice again this month. If your financial picture is going to change significantly over the next year (house purchase, major investment, etc.), then it would be wise to re-evaluate your investments. However, if that is not the case, it is advisable to focus patiently on the long term. Happy investing! Ü