Dear Money Maven,
With what is happening in regard to subprime debt, the banking sector and the housing industry, do you think this market is going to collapse?
-- Stacy L., Bryn Mawr
Well, Stacy, if, after 30 years in the investment industry, there is one thing I have learned in regard to investing: "The advances are permanent, and the declines (although maybe prolonged) are temporary." There is no way to ever anticipate the length, size or impact of market sell-offs.
Proof? Quotes from the past:
· "Imminent collapse of the market is near."
-- Market strategist, Elaine Garzarelli, a few days prior to Black Monday, Oct. 19, 1987, when the Dow Jones Industrial Average fell 22 percent.
· "Sell all stocks. This is a bubble market, not the normal entrance to a new bull market."
-- Technical analyst Joseph Granville on Nov. 6, 1982, after the beginning of a new, but then-unidentified, bull market.
· "Stock prices have reached what looks like a permanently high plateau."
-- Yale economist Irving Fisher in October 1929, shortly before Black Tuesday.
My source? The Wall Street Journal, May 23, 2007.
However, as a long-term investor, you must realize that any weakness should be used as a buying opportunity. This is especially true for retirement assets, and any money allocated towards growth and long-term planning.
Every decade, somebody calls for a collapse. If you are a long-term investor, use your opportunities to buy, reallocate or hold -- but do not sell unless you have no other short-term alternative.
Know why? This bull might have legs. Here are some thoughts on the market direction:
· Bull markets that span a decade tend to come along once in a generation. The longest bull market in history ended just seven years ago, but some experienced market-watchers believe that the current bull market is primed to keep growing.
Not everyone is on board, though. Some critics believe that certain fundamentals indicate that the current bull market is on its last legs.
· Bullish investors base their forecasts on the Federal Reserve's recent monetary policy, which has helped slow the economy to a manageable level without causing a recession, while also keeping inflation relatively low. As the economies of the U.S. trading partners continue to grow, they are expanding market opportunities and helping to keep the value of U.S. stocks rising.
· Bearish investors also get some fuel for their fire from the global outlook. The weaker dollar has reduced real returns from U.S. stocks and added new appeal to foreign stocks. The bears also suspect that optimism for a long bull market is a signal that the market may be overvalued, and that today's low interest rates and high profit growth must eventually revert to historical norms, or worse.
In the view of noted forecaster Harry S. Dent, the current economic boom began in the 1980s as the enormous baby-boom generation began to engage in predictable spending behaviors. The youngest boomers are now in their late 40s, their peak spending years.
As their families grow up and leave home over the next few years, their spending will subside (inevitably affecting stocks) as they focus on paying debts and saving for retirement. Dent predicts a noticeable slowdown will begin around 2010 and last until the next generation enters its peak spending years.
No matter which theory you embrace, it's important to remember that every transaction has two sides. The key is to position your portfolio in order to take advantage of whatever changes may lie ahead.
Craig G. Langweiler is president of Langweiler Financial Group, located in Newtown. He can be reached at: 215-860-8088 or at: [email protected] .