Times Are Tough

Does This Signal a Bottom

Today a news story came out that was somewhat disturbing. Mutual fund giant, Fidelity Investments reported that a record number of hardship withdrawals were made from retirement accounts. Also investors who borrowed from account hit a 10 year high.

Now what does that tell us ? Some can analyze this news in a gloomy fashion. Others may look at it as a tremendous buying opportunity. Many of us remember the go-go bulls markets of the 80′s and 90′s where excess ran rampant. Some of us knew ordinary people who somehow accumulated high 6 figure and even 7 figure accounts, due inflated gains in the market.

In both of those bull markets it seemed easy to make money. Everything from blue chips to penny stocks seemed to work. Even when positions were in the red, it seemed that in time they would turn around. And for a time that strategy worked. Until of course, the optimism became too high. Shortly after the two huge runs, we saw the Crash of 1987 and the Internet Bubble burst.

Right now we may be seeing the polar opposite. Although we are currently seeing decreased market volume due to summer doldrums, there is another factor attributed to the light trading. It’s a sad one too. Many retail investors have simply thrown in the towel.

Historically this has been a buying opportunity and could be lucrative for those who are liquid. Sir John Templeton always wanted to buy in times of turmoil and sell in rallies. By no means am I saying to jump in with two feet, but a legitimate look at this market should be taken on a long term basis. Even if it’s seems to be a little early. This means taking a look at everything from the NYSE to the OTCBB.

However, you must be prudent. Sadly enough many of the above mentioned who borrowed versus 401k plans simply fell on hard times. Others, though simply overextended themselves. Either in their lifestyle or by trading to aggressively. These stories range all the way from somebody who lost their job all the way down to somebody losing a substantial amount on a mining penny stock.

This is why you never invest what you can’t afford to lose. For instance, right now we are seeing major consolidation in the Ag space. This M&A activity does merit a look at the sector and it wouldn’t be unreasonable to commit trading money into one of the names.

However, the amount of the investment has to be prudent. Just in case it doesn’t work. So if you want to take a contrarian view on the negative investor sentiment. Do so wisely. For instance never commit 30 or 40 percent of your portfolio to a stock. It doesn’t matter if it is a dividend paying blue chip or a hot penny stock. Also don’t trade on margin. Even if you can afford to. Lastly, and most important. limit your losses. Don’t be afraid to lose 10% on a trade. Preservation of capital is more important than missing out on a winning trade. So if you buy into this contrarian market view, be smart and not greedy.

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