Strategies for a Sideways Market
Linda Stern of Reuters recently wrote in a column titled “Strategies for a Sideways Market”:
“The bulls and the bears are in this together, scratching their heads and wondering what’s going to happen next. Up and down, down and up. As soon as you think you know where the stock market is going, it doesn’t…An increasing amount of money has been flowing into fast-trading (and often short-selling) hedge funds that may be whipsawing the market with their staccato trading patterns…What’s a small-time investor to do? Perhaps it sounds facile, but the best thing to do with a sideways trending market is “not much.” Plain folk who are stashing away money for college, retirement, or that rainy day don’t have the computer models that those hedge fund managers are using. Nor do they have the deep pockets to carry them through should their models fail. But they do have one thing going for them: The upward trend of the U.S. stock market. Most investors who stick with their long-term program of regularly investing in a diversified portfolio will be richer in five years regardless of where the market goes on Tuesday … or Wednesday … or Thursday…The market will shake itself soon enough. And those slow-steady investors will be ready when it does.”
Some commentary on this commentary:
1.) If you actually think you know where the market is headed, you are delusional.
2.) Blaming hedge funds for a sideways market is silly. A sideways market is a sideways market. The concept is not new. There were sideways markets a hundred years ago.
3.) The writer thinks 5 years of buying and holding will solve your problems. Where would you be if you bought the Nasdaq Jan. 1, 2000 and held till today? Would you not be down -60% still? When does the buy and holder of the Nasdaq ever get whole again in this example?
