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Stock Market: Time to Go All In

This article was written by in Investing. 17 comments.

I don’t advocate trying to time the market. It’s impossible to predict with any kind of consistent accuracy what the stock market will do, and the impossibility increases — regardless that the concept defies logic — as the time frame is shorter. I’m still looking at a horizon far enough in the distance that the day-to-day, week-to-week, or even month-to-month volatility doesn’t bother me that much.

My life is reaching the point where I would prefer my investments start generating income rather than just building wealth. Were those the only two choices, I’d be fine, but there is always the possibility of losing money. Call me crazy, but that’s what I’m trying to avoid.

With the election somewhat behind the country, I wasn’t surprised with the immediate reaction in the stock market. It’s hard to say exactly why the S&P index moves one way or another in the course of a day, an hour, or a minute, but the financial news media sure does try hard to align an effect with an apparent cause. And the stock market dropped the day after President Obama was re-elected. Despite the fact smart money had been on Obama, with Intrade, Nate Silver, and most of the polls all pointing towards a Democratic victory. I half assumed Obama’s victory had already been “priced in” to the market.

Panic in the financial markets, at least for a day or so, kicked in. And that triggered my investing muscle. If everyone’s panicking, it must be a good time to buy into the market and walk out with some bargains. After all, historically, the markets and the economy fare better under a president who is a Democrat than they do under a president who is a Republican. (FOX Business cites a McGraw-Hill study that shows the S&P 500 averages a return of 12.1% per year while Democrats are in office compared with 5.1% per year for Republicans, and the GDP increases 4.2% per year for Democrats and 2.6% under Republicans.)

Past performance doesn’t guarantee future results — but my money is on the fact that it’s a good idea to invest while the financial industry is panicked with the thought of a business-friendly Democrat leading the economic destiny of the country rather than a moderate Republican. And this is just the beginning. Over the next few months, the story leading the financial news is going to be the so-called “fiscal cliff.” Just like the debt ceiling arguments that gripped the nation last year, creating some kind of fake drama everyone knew would be resolved in the end, but the uncertainty held the economy back, I expect these issues to be resolved, though probably at the last minute.

We, as an American audience, have proven we love drama, even when fake. Today, government is not much more than a reality television show — and the word “reality” is used ironically. Just like the Real Housewives are staged, so is much of the modern political process, to the benefit of the massive media conglomerates that sell advertising time on their networks. That isn’t to say the problems we’re facing aren’t real, but they aren’t worthy of inducing fear-based decision-making.

The public seems to be panicking needlessly about the economy, and this puts the country into a drama feedback loop. It’s doubtlessly assisted by business owners who have the opportunity to blame the government for the layoffs they need to enforce because they are part of a dying industry that has made no attempts to modernize or react to a changing public perception. These dramatic times are necessary for savvier investors to find great opportunities. These usually come in the form of starting businesses amid turmoil or those who have an opportunity to be an initial investor in something groundbreaking. Those who survive when everyone else is too scared to start something will thrive. This bleeds into the market in general, too, which is why Warren Buffett’s motto is to be greedy when others are fearful, fearful when others are greedy.

Others are fearful right now, and they will be at least until the season finale of Fiscal Cliff. So I’m taking this as an opportunity to set up an automated investing plan that increases my exposure to a wide range of investments, stocks and bonds, over the course of the next few months. There are two possible outcomes, and when I take a moment to analyze this, I find out that I’d have been wrong in both situations.

The first is that the market increases over the next few months. I took the wrong action because rather than investing a lump sum today, I spread it out over time, getting worse deals for my money along the way. The second is that the market doesn’t increase over the next few months, in which I would have done better by not investing until the end of the period if at all. Without knowledge of the future, I can reduce my pricing risk by dollar-cost averaging my investment.

This may be the wrong reason to dollar-cost average, but it feels less riskier than putting a lump sum into the stock market right now, at a time when I expect drama and volatility to increase approaching the end of the year. And as December 31 approaches, it might become clearer whether tax rates on long-term investments will increase. If they do, people who believe their investments are good due only to the favorable tax rates will sell, creating more opportunities for people who believe the investments are good regardless of tax rates to find fair-priced purchases.

Have the election results or the current drama over potential tax rates and the economy affected your decision to invest?

Photo: Flickr

Published or updated November 12, 2012.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 17 comments… read them below or add one }

avatar 1 Anonymous

I dollar cost average every paycheck so it doesn’t affect my investing decisions much. I have a goal coming up that means I need to change my strategy though so I’ll be selling some of one investment and buying some of another soon.

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avatar 2 Ceecee

CNBC can’t seem to stop talking about the fiscal cliff. It is getting annoying. I am looking over things to decide what to buy……even some of the great dividend paying stocks are on sale right now.

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avatar 3 wylerassociate

Not at all. I don’t buy into the fiscal cliff fearmongering that I hear on conservative media. A deal will get done early next year. I am definitely investing in the stock market and there are so many good companies to buy on the cheap. Pulte Homes and Cisco are just a few that I have bought recently.

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avatar 4 Anonymous

I tend to agree, now’s a good time to buy. The Obama-haters are fully engaged in spreading sour grapes ‘end-of-the-world-as-we-know-it’ stories and selling stocks for emotional not intellectual reasons. While they shoot themselves in both feet, might as well take advantage of ideology overwhelming common sense and reason.

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avatar 5 Anonymous

I do think there are some good bargains out there right now. It is a pretty good time to buy stocks.

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avatar 6 Anonymous

I expect the next 6 weeks to be very rocky until the financial cliff is resolved. After that I expect the market to perform fairly well. I have been dollar cost averaging into the market for years. I never try to time the market.

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avatar 7 Anonymous

I disagree with those that state the Obama re-election triggered either conservatives or liberals to react via their investments. The fiscal cliff is real; the likelihood of further devaluation of the dollar (inflation) coupled with increased pressure to downgrade US debt is real. The fear being felt was caused by the combination of the re-election of Obama and the republican majority in the House. Most feel that real solutions are unlikely and, once again, the proverbial can will be kicked down the road while tough decisions are left wanting. Europe and Asia, struggling with their own issues, don’t see our economy growing enough to help them – and we are all interconnected. The tax increases that are a part of the solution will affect either a lot of us (ending previous tax reduction completely) or only a few high earners. Neither is the right answer without a more decisive and comprehensive spending plan. Stock purchases, bond purchases or a complete flight to safety (cash) should be based on long-term objectives and risk tolerance within an age-appropriate investment allocation, not the latest rise or fall of broad market indices.

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avatar 8 Anonymous

The election and fiscal cliff are small potatoes. What im concerned about is our sky rocketing national debt! That is why i longer invest in america or bonds. Emerging markets and metals is where its at. Until the debt clock starts moving downwards i wint put another cent in the american stock exchanges

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avatar 9 Anonymous

If you are looking to produce an income with your assets have you given thought to non-stock market options? Like a business (online or offline) or Real estate?

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avatar 10 Luke Landes

Yes, I’m looking into a few business opportunities and some direct investments. Real estate — at least residential — doesn’t provide a lot of opportunities in my area. But I’m still looking into it.

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avatar 11 Anonymous
avatar 12 Anonymous

Shorting the Obama win was the best way to invest in this market. His win guaranteed a huge sell off and it’s not over yet.

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avatar 13 Anonymous

“business-friendly Democrat” that’s the funniest thing I heard all day. Obama is certainly for big business, but otherwise known as crony capitalism. Small businesses, not so much and wants to tax the hell out of us.

While I don’t disagree with your logic in investing, like Andy don’t think it’s over yet.

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avatar 14 andrea1983

The market increases over the next few months?Fiscal cliff, when will the stock market turn better?

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avatar 15 Anonymous

As a market technician I’m always curious for reasons both given by the public and media on what they do and why they do it. I have found that the market can be timed, although not perfectly. The market is essentially mass sentiment with a large dollar sign attached to it. It goes through rather predictable (but often crazy) price swings that establish a trend either bullish or bearish. What I find the most curious is the “monday morning quarterbacking” that follows these moves. It seems the media picks there favorite story and applies it to whats happening. It’s like finding a suspect and then creating a case around them. I document these moves on my blog: People should not be mystified by the market. I think that does more harm than good

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avatar 16 Anonymous

I agree that now is a good time to invest but I would prefer to build a solid and diversified portfolio of stocks that pay dividends rather than rely on the movements of S&P as you say. I think that for the next 3-4 years, dividends will be an important “indicator” that can boost the confidence of the investors and can restore stability in the markets.

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avatar 17 Anonymous

It’s interesting to see the market as it stand now a couple of months after the posted originated. We sold off for most of November, then began to climb in December only to get creamed the last couple of days before the New Year and now we are talking about approaching all time highs. If that doesn’t tell you that markets are now more trading vehicles than investment one I don’t know what would. In any case the chart patterns back then as well as now established what was going to happen before it did happen. This with one exception of the second weeks of December we should have continued to climb, but the growing notion of no deal was a prevalent one. In any case, the charts look good for the bull for the next few weeks to a couple of months. Good Luck everyone.

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