Concern from investors the Federal Reserve and chairman Ben Bernanke may soon be removing the punch bowl of liquidity may have found greater evidence of that happening as the minutes from the last Federal Reserve meeting was released and the fed governors are in fact contemplating an end to the quantitative easing that has been in play for the last several years. With this, the averages accelerated to the downside and closed at the lows of the session.
Caterpillar (CAT) set off the day on the wrong foot as the global equipment giant released global sales data in a recent 8-K filing that shows sales numbers trending lower. Elsewhere, earnings results pushed stocks like CF Industries (CF), Garmin (GRMN), Devon Energy (DVN), and Marriott International (MAR) all lower. Gold (GLD) prices have broken below the $1600 an ounce in a fairly significant way this morning. With plenty of retail investors having hidden in the precious metals the last few years, any signs of further price trouble could cause a bit of selling momentum.
When it Comes to Money, Flexibility is a Must
Many of us have fond memories of things in our lives, such as sports, movies, or music, which we tend to stick with as our favorites. We all have our go-to things when we want to reminisce a bit or just enjoy what we have liked for many years. When it comes to money and investing, however, sometimes sticking to our old favorites can be detrimental to our financial lives.
You see, investments can often go through cycles. For example, people that were scooping up commodities back in the early 80′s had to wait 25 years to see any sort of price appreciation on their investment (and the years in between saw steep drops in prices). Stocks are no different. Investors that are chasing the hot names of the day can sometimes strike it rich if they are able to get out when a stock’s momentum dries up, but unfortunately most hang around expecting bigger returns or eventual rebounds. Real estate buyers were going gangbusters up until a few years ago, but when the top came, many were caught off guard, stuck with loans they couldn’t afford and properties they couldn’t flip.
During all these crazy investment periods, the individuals who did the best were those who either decided to sell while the getting was good or those who raised more cash in anticipation of tremendous buying opportunities. This all brings me back to the point of investments being unlike some of our lifetime attachments we hold on to (favorite teams, players, music, movies, etc.). In real estate, we will sometimes see particular areas change, and not for the better, eventually hurting those property values. In stocks, industries come and go, some sectors and names that may have worked for years could eventually disappear. Commodities have been great for nearly the last 8 years plus, but if global economies are able to stabilize, maybe owning gold and silver will be the last area you want to be keeping significant capital in.
We are still in the process of seeing economies try and sustain a bit of strength without government intervention. This is also why balance is essential to making money consistently. Staying too bullish or too bearish has often cost investors a great deal of returns as they are unable to shake whatever the recent memories were that dominated their perspective. Plenty of money was lost for those who went to the sidelines in late 2008, only to see markets begin to rise up in the spring of 2009. On the flipside, tech and dot-com investors kept buying right into the very top back in early 2000, only to see gains wiped out in just several months and losing nearly everything in stocks that totally disappeared.
Change will be a constant in our investment lifetime, so you can be sure we will be following the turns here at Dividend.com. We’ll continue to do our best to keep investors one step ahead of any impending changes.
Thanks for reading everybody. I’ll see you tomorrow!
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