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Forget Old Sayings - Invest on Fundamentals

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There is an old saying in the market: “buy on bad news, sell on good news.” Like many old sayings, it contains just enough truth to sound believable.

Fortunately, the market doesn’t listen to “old sayings” and you shouldn’t either. The feeble idea behind this one is that bad news will drive the market down so you can pickup some bargains, while good news pushes the market up for a time to take some profits.

If you are a day trader, this saying probably works for you. Bad news certainly can move the market down and good news can move the market up.

Settle Down

However, once the market has time to absorb the news prices usually settle back into a normal range for the trading conditions of the moment with more concern about inflation, earnings, and other indicators that bear directly on stock prices.

Consider a week in which oil hits a record high price, the economic news is not great, and one of the world’s major cities is hit with a horrendous terrorists’ attack. The U.S. markets reacted sharply, but briefly to the terrorists’ attack then righted themselves and ended the week with nice gains.

Any one of those three factors could have been enough to send the market lower, but together a losing week seemed almost certain – just what most watchers expected and just the opposite of what happened.

Looking Forward

Remember, the market is always looking forward. In this case, second quarter earning season is here and the first indications are better than expected. This outweighed the record oil prices, which don’t seem to be a factor yet in earnings.

However, the housing boom, which is beginning to feel more and more like a bubble in some markets, and the ultimate impact oil prices must have on inflation may be the dash of cold water that will turn the market south.

Conclusion

In any event, forget old sayings and concentrate on those fundamentals that affect the market over time. Shape your portfolio to match your time horizon (the sooner you’ll need money from your investments, the more conservative it should be) and your risk profile. Don’t worry about jumping in and out of the market, because over time that’s a losing game.

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