Remain Cool-Headed

In the last 10 days, the major equity averages have lost, and then largely regained, 4% of their market value. Hence, a $1 million stock portfolio would have dropped to $960,000 and then recovered between June 21 and July 1. The frantic movements resulted largely from recent pronouncements by US Federal Reserve Board Chairman Ben Bernanke hinting at the likely, more restrictive contours of future monetary policy. (I likened his comments to those of my mom when we three kids were young and fooling around in the backseat and she would yell back from the front seat, “Don’t make me stop this car!”) A threat, but hardly a sign of “clear and present danger”. Nonetheless, the Wall Street Journalreports today that “Bond and stock mutual and exchange-traded funds saw outflows of $19.6 billion in the week ended Wednesday… ” (Wary Investors Turn to Cash).

As we have counseled in the past, emotional investing seldom leads to success and can often lead to harm. The past 10 days bears this out. A sale of stocks at the low in the hypothetical scenario outlined above would have locked in $40,000 of losses.

All comments or questions are welcomed.

Bob Bilkie, CFA