Bad News Is Good News

02/05/2009 12:00 pm EST

Focus: MARKETS

Kelley Wright

Managing Editor, Investment Quality Trends

Kelley Wright, managing editor of Investment Quality Trends, says many individual stocks are actually performing better than the overall market.

“If it bleeds it leads” is de rigueur in the publishing business. With the world in recession and bad news the rule rather than the exception, editors across the board are selling blood like there is no tomorrow.

With so many publications fighting for survival, all of the stops are being pulled in order to attract eyeballs. The majority of investors will get sucked into this endless loop of pessimism and will miss the forest because of the trees. Enlightened investors, on the other hand, have learned to dismiss the greater part of this “news” and focus on what is important—building their capital and income base to meet their current or future cash needs.

This is not to discount or dismiss the market action of the last year and a quarter. This is a brutal bear market; losses to date are commensurate with the losses seen over an entire bear cycle. In the interest of managing expectations, the odds and history suggest the entire bear move isn’t close to being over yet.

While market volatility has remained very high, there are some indications the market is trying to establish a base from which to initiate a counter-trend retracement. Since the October 10th disaster when over 90% of the stocks registered new lows, the number of new lows has been consistently declining, albeit with the occasional one-day spikes. The low of 7552 in the Dow Jones Industrial Average that was established on November 20th has been challenged but not violated—an amazing feat in light of the constant stream of bearish news.

Equally amazing is that the Advance/Decline or A/D Line has been in a slow but steady up trend, which suggests the majority of stocks on the New York Stock Exchange have been rising. While the Dow and Standard & Poor’s 500 index are down [around 10% so far this year], which isn’t all that horrific considering the daily broadsides the markets have been taking, the market of stocks—as measured by our Select Blue Chip FOLIO—is doing much better, up 2.71%, so the FOLIO is performing well above its benchmark.

The point of the above is that the focus should be on the stocks, not the market or Washington. What is unfortunate is that all eyes are on Washington. I don’t give a tinker’s diddle about who is calling the shots in Washington; the answers to the markets’ problems will have to come from the markets. When has Washington ever created one private sector job? When has Washington ever developed a new technology or service? Washington doesn’t make money; it only spends it.

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