Do not become enticed by small or even sizable market timing bounces in up trends that do not truly change the trend. Some of these come because an external event like Japan settles down a bit from the earlier panic. They are bounces in a down trend that will take much longer to play out. There is huge structural damage to Japan that cannot be worked out in a few days.
If you go by valuation, Japanese stocks may be better valued today than before the crisis, but that does not say they will not become even better values. That is the problem with value investors at times. They do not consider the trend. I say consider both the trend and the fundamentals.
So let’s do that. The market timing trend is down with a bounce so far. The fundamentals are very unclear and very difficult. Do not jump in to be a hero. If you know individual Japanese companies that will continue to do just fine because of their physical location in Japan (no damage etc), then I say great. Investing that way could be smart. I do not believe the waters have been cleared for the Nikkei 225 however (EWJ tracks it as well as many Japanese mutual funds).
The move today is likely just a market timing bounce in a decline and that goes for the SP500 Index as well, but we won’t know right away. You’ll want to check back here for further comments. If you do any selling you will likely want to move out in scale rather than all at once. You’ll have to decide what works for you. Take a look at my free SP500Tracker™ newsletter. It will be out again this weekend (and you can catch up with this week’s copy today – link to it is sent to you by email) and again, it’s FREE, so please subscribe below if you are concerned about where the stock market may go from here:
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© 2011 David B. Durand, M.D. All rights reserved.