Business Beat: Craig Allen

The last few weeks have been volatile, to say the least, and many investors are questioning whether they should own stocks at all. In this week’s column, I’ll discuss the big picture to provide some context for investing in these challenging times, and will also shed some light on the reasons that, right now, may very well be one of the best opportunities to invest in a very long time.

First, let’s recap what has happened over the past few weeks. Most will recall that only a few weeks back, most pundits, analysts and talking heads on the financial networks were raving about how great the economy was and how inexpensive stocks were. Keep in mind that this was when the S&P 500 was above 1,350. Then the stock market started to sell off. By the end of July, stocks had already dropped about 70 points (S&P 500) from their recent highs, or by about 5 percent.

The most significant negative came when, after lengthy debates and a last-minute vote, Congress passed the debt-ceiling increase, with only hours to spare before the United States would have defaulted on our national debt. Stocks seemed to stabilize a bit on Aug. 1 with the successful vote, but began to fade again — almost immediately. By Thursday, Aug. 4, panic seemed to be setting in, and we lost 60 points on the S&P 500 that day. The following Friday, late in the day, Standard & Poor’s downgraded the U.S. sovereign debt rating to AA+ from AAA. Monday, Aug. 8, saw stocks in free-fall, as the S&P 500 lost an additional 80 points, or almost 7 percent that day alone.

Throughout this past week, even despite that 7 percent drop last Monday, and despite the massive volatility we experienced, stocks ended the week relatively unscathed, with the S&P 500 losing just 22 points, or about 1.8 percent for the week overall.

Sometimes it is hard to comprehend what is really happening on a big-picture basis when stocks are experiencing huge swings day-by-day. For many investors, this volatility is simply too much and panic overtakes them, and they sell, usually at very unfortunate times, such as near the close last Monday. There are few things more painful that riding investments down by 15 percent to 20 percent, then selling, and watching the market run right back up. Sadly for many investors, this is what they are currently experiencing.

Those who are long-term investors should not allow short-term fluctuations, no matter how severe, to sidetrack them from their investment strategy. Unfortunately, many investors lack a well thought-out strategy that matches their long-term financial goals with appropriate investments comprising a portfolio structured specifically to meet those goals. If this is the case, your first step should be to formulate your strategy.

You need to know what your true, long-term goals are before you can build your strategy. Once you know your goals, build a strategy that will place you in the best possible position to meet those goals, without taking more than your acceptable level of risk. Once you have your strategy in place, stick to it! Do not allow fluctuations in the market to take your focus away from your true goals.

If you are not capable of formulating your own strategy, seek the advice of a qualified expert. Avoiding even one episode where you panic out of the market at the worst possible time will make the cost of the expert’s services well worth it! A month or two from now, few will remember why the market went down, and even fewer will care. What many will remember is that they sold at the wrong time, lost money and missed an opportunity to own good quality companies at very attractive prices.

While it is certainly true that economic growth is slow, we are still growing. Some “experts” have discussed the possibility of a double-dip recession, but I believe we will continue to see positive economic growth, although I expect it to remain slow through 2012. Now that stocks have corrected significantly, I feel much more comfortable investing. I have been holding large cash positions for many months, waiting for the right opportunity, and have been buying intensely over the past week.

Corporate profits have been strong, and we saw top-line revenue growth across a wide array of industries for the first time since the recovery started. In my experience, investors only get one or two opportunities each year, if at all, to buy stocks at attractive valuations. This is one of those times!

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Craig Allen, CFA, CFP, CIMA, is president of Montecito Private Asset Management LLC and founder of Dump Your Debt. He has been managing assets for foundations, corporations and high-net worth individuals for more than 20 years and is a Chartered Financial Analyst (CFA charter holder), a Certified Financial Planner (CFP) and holds the Certified Investment Management Analyst (CIMA) certification. He blogs at Finance With Craig Allen and can be contacted at or 805.898.1400. Click here for additional Craig Allen columns. Follow Craig on Twitter: @MPAMCraig.