Saturday, March 03, 2007

Market Pullback: Now What? (Follow Up To 2/28 Post)

The Dow Jones Industrial Average is down 2.84% on a year to date basis. That does not sound like a market plunge or correction to me. Over the last 52-weeks, the Dow is up 9.91%. Certainly, this past week's decline of 4.22% is causing investors to review their investment portfolios and reassess their overall asset allocation, i.e., between stocks, bonds, cash, etc.

An investor should review their overall tolerance for risk just as they should have done during the market correction following the bursting of the technology bubble in 2000. An important question that each investor can only answer themselves is what minimum asset value puts their retirement, retirement goals or simply overall investment goals at risk. This evaluation process needs to be done even when the market is rising. It is better to buy low and sell high. Before this recent pullback, has the allocation between the various investments gotten out of line with ones original intentions? The rebalancing of ones investments is an ongoing process and should not just be done when the markets are declining.

Assuming all is well at this point, now what is an investor to do? There is an interesting post at Alpha Trends web site titled Adjusting For Higher Risks. The author theorizes the worst is behind us and the "natural question is what should be bought?" A couple of paragraphs from the post:
"What makes people want to buy a stock? There are many factors which people consider before purchasing a stock and while we primarily focus on the technicals, there is another group of participants whose focus is on the fundamentals of the company. I am not going to tell you that fundamentals really matter to me, because they don’t. I’m just looking for stocks that will go higher.

There is a large portion of investors who consider fundamentals to be the most important thing to consider before purchasing a stock. To me, the PE ratio is as valuable as the MACD or a moving average. By that I mean that by themselves, they are useless…that’s right, you read it correctly. The value of any market measurement is not in the literal interpretation, but in the correct assessment of determining when they will be considered important enough to a large group of participants to make a decision to buy or sell decision. If a widely followed indicator can be used to clue us to a potential move in a stock we cannot ignore it, that is common sense."
As the article notes, one thing an investor can do at this time is to construct a list containing stocks that might be attractive purchase candidates. The article is well worth reading.

In order develop the list, several websites do offer screening capabilities, some better than others. Following are links to a few of the sites where one can begin their research.
Lastly, at Bill Cara's Capital Markets website, he has a post (click here) listing a number of investments--stocks (by sector), etfs and bonds--detailing price performance over various time periods.

These are just a few links where one can begin their search process.

No comments :