2/1/2008 UPDATE: For an interesting read on this same subject, please check out this MSN Money article, entitled,
Is the US Entering Japan's Nightmare?
The Question – What to do with my Portfolio Today?
DEAR MIDLIFE BACHELOR: I am curious what you think about today’s stock market. If I currently own a handful of stocks and stock-oriented mutual funds, should I hang on to them? I mean things seem to be going down pretty drastically this year so far. What would you do, and why? Dean, Age 47, Las Vegas, NV
Midlife Bachelor’s Economic Forecast
MLB ANSWER: This is an unusual and complicated question for “ASK MIDLIFE BACHELOR” but I will give you my short take on it. My disclaimer is that I am not a financial advisor – I am an investor just like you. My take is that I avoid owning assets that are rapidly losing their value (with the exception of my cars and maybe the home I live in). So the question becomes – how much will your stocks and mutual funds drop before they bottom out? And when will the bottom occur? [They don’t ring a bell at the bottom, you know ;o) ] If you believe (as I do) that we are experiencing a major correction/bear market on par with what happened between 2000 and 2002, then there could be a period of up to 32 months before stocks stop falling. [The Dow Jones Industrial Average went from 11,722.98 during the week of 1/10/2000 down to 7528.39 during the week of 9/30/2002 … a decline of -35.78%.] Of course, it is possible that the DJIA could drop even further – the worst period EVER was from July 1929 to April 1932 when it dropped -87% over 33 months. You can pull all of this data from yourself from finance.yahoo.com.
Let’s say that the current correction is roughly equivalent to the 2000-2002 drop of -35.78%. The recent DJIA peak occurred during the week of 10/9/2007 at 14,164.53. Shave off 35.78% from that and you get a projected bottom of 9096. If it takes 32 months (as it did in 2000-2002), then the drop won’t be done until roughly June 2010. The DJIA has already lost 14.58% (as of 1/18/2008) since 10/9/2007 … and if you believe that a -35.78% total correction is coming, then we have another -24.82% to lose between now and June 2010. Continued on next page >>>