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Market volatility can make for opportunity

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By Linda Norman

Paul Harvey, the radio icon, is quoted as saying, “In times like these, it’s helpful to remember that there have always been times like these.”

Who doesn’t want to forget 2008? By all measures, it was a really rotten year for the economy, credit markets and the stock market.

Unlike previous economic downturns, this time there was no place to hide – not a single asset class held up under the pressure of a worldwide credit crisis. Fear was palpable, which was understandable as bad news was pumped incessantly into our homes via a 24-hour news cycle that feeds on it.

The reality of declining portfolio balances has hit many of us hard. The S & P 500 index declined 37 percent in 2008, but if you measure from the market top in October 2007 that decline is closer to 50 percent. This is indeed a troubling and challenging time for investors and emotions are running high, causing many to cash out and stay on the sidelines.

No doubt about it – consumer confidence is in the tank, housing is abysmal, the auto industry is on the verge of collapse, unemployment is up and our government is on a spending spree. All of these are reasons to hide money under the mattress, right?

Perhaps not.

If history is to be our guide then we must acknowledge that periods of turmoil and steep declines have also proven to be a good time to invest. Many have compared this period to the Great Depression of the 1930s, and although there are similarities there are important differences, too.

For example, contrast today’s unemployment rate of 7.2 percent to the 24 percent unemployment that marked that painful period. Also, the foreclosure rate was near 50 percent; even the worst estimates don’t come close to that number today.

As bad as things were in the ‘30s, diversified investors who stayed the course once the market hit bottom in 1932 could have recovered their losses within 4 years and 4 months. Those who added at the bottom could have made up their losses within months, not years.

Jeffrey Saut, Chief Investment Strategist at Raymond James maintains that we have most likely found the bottom or at the very least we are in the “bottoming process.” In fact, he suggests that stocks are cheap and he is dollar-cost averaging into the market, buying some now and buying some later. His emphasis is on dividend paying securities that are paying investors income while they hold for a possible gain.

Saut is not alone in his assessment of the market. Richard Russell, who writes the Dow Theory Report and accurately predicted this bear market, has recently become bullish. Even though it appears likely that our economy will face still more shocks this year, the market may be poised for a rebound.

The economy and the stock market don’t always move in tandem. The stock market is a leading economic indicator,  and just as the selling began back in August 2007 before anyone knew that we were in a recession, it often moves dramatically higher in anticipation of recovery.

The advance from a market bottom can be fast and substantial. Investors who have left the market can miss a large part of any eventual recovery.

Fear and greed are powerful emotions that move the market up or down. Clearly, fear has been the driving force for months now.

Euphoric investors tend to buy high and fear-driven investors tend to sell low. Many times this is the same person.

Managing emotions is probably the single most needed skill to navigate markets in turmoil. Investors who are able to keep their emotions in check may find 2009 to be a year of opportunity.

Linda Norman is a Certified Financial Planner affiliated with Raymond James Financial Services, Inc., member FINRA/SIPC. Formerly located on the 200 Corridor, her office is now in the Deerwood II office complex. She can be reached at 861-1220, e-mail Linda.Norman@raymondjames.com, or visit www.raymondjames/practicalplanner.