Wednesday, July 20, 2016

The price of panic: Missing the rebound rally

http://www.usatoday.com/story/money/markets/2016/07/18/panic-investing-is-costly/87097112/


Panic selling is not an investment strategy. Repeat: Panic selling is not an investment strategy.
Just ask investors who bailed out of stocks on Feb. 11, the nadir of the worst start to a year ever on Wall Street. Spooked by the market's nearly 12% drop, they got out at just the wrong time. And missed out on a monster rally of more than 18% for the broad U.S. stock market. Hitting the panic button resulted in emotion-driven investors missing a mini bull market, one compressed into a short five-month time frame.
Investors who bolted the market on Day 2 of the two-day 5.3% swoon after the U.K. on June 23 bid farewell to the European Union, its long-time economic partner, also missed out on fat gains. The Standard & Poor's 500-stock index has rallied 8.2% in the 12 trading days since the Brexit bottom.
The sell-low — and eventually — buy-them-back higher is not a winning investment strategy.
Never was. Never will be.
"The lesson," says Bob Doll, chief equity strategist at Nuveen Asset Management, "is to buy stocks when they are down, trim them when they are up — not the other way around."
Other lessons Main Street investors learned from the "worst start to the year" scare or the Brexit panic:
• TINA is still alive. TINA — the acronym for "There Is No Alternative" to stocks — is still a winning trade. That's even more true now that U.S. government bond yields are flirting with record lows and many sovereign bonds overseas now have negative yields.
"The key lesson is that when bond yields are so persistently low, there is really no sensible place for money to go except for stocks," says Don Luskin, chief investment officer at TrendMacro. "That puts a safety net under stocks, and events that would normally be bear markets turn out to be mere corrections and buying opportunities."
• Don't underestimate U.S. economy. It's resilient, and consumers are confident. "U.S. recessionary fears caused the markets to swoon earlier this year, but these fears were overdone," says Joe Quinlan, chief market strategist at U.S. Trust.
Counting out China is also a mistake, adds Quinlan: Don't underestimate "China's whatever-it-takes mentality to pump up real growth."

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