Friday, January 23, 2009

Dow 6000?

A new client recently said she thought the markets weren't done shaking off the ills of the credit crunch and that she expected to see the Dow Jones Industrial Average drop to 6000 before this bear market is over.

She asked what I thought was going to happen. Coincidentally, I recently read a professional publication which quoted renowned technical analyst Louise Yamada as also calling for Dow 6000, so I had specific answers for this question:

1 - I don't know.

2 - Neither does anyone else.

3 - With the DJIA currently hovering at about 8000, if these guesses of Dow 6000 do prove true that would represent a 25% loss. In the long run (which, of course, is the only time frame that makes any sense for investing in stocks), the upside potential is limitless.

To paraphrase financial behaviorist Nick Murray "If you have an investment opportunity which has a potential of losing 25% with a potential for infinite gains, and you do not put your long-term money there, you are clinically insane."

We don't need to know what's going to happen next week, next month, or next year in order to be successful investors. Now, as ever, we need to keep focused on our long-term goals and ignore the financial soothsayers.

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