There’s nothing worse than someone going around telling you “I told you so.” It’s far better to be humble. With that in mind, I won’t mention my last article warning people to avoid the buy and hold strategy. Since that article appeared, the market has been pummeled.

In October of 1987, after Black Monday, I told my clients that I thought they might be best served by turning a blind eye to the market’s volatility. That turned out to be good advice at the time. Today, if I were in the same position, I don’t believe I would make the same suggestion. There is no firm foundation to support profits in equities. You could argue that there are many companies with good fundamentals, good earnings and cash on hand. It doesn’t matter.

Psychology affects the markets as much as anything else. For all practical purposes, it may affect the markets more than any other single variable. A loss of confidence is much like a snowball rolling down a hill……………it gets bigger and picks up speed. The market relies on signs of improvement and optimism. It seeks out some hints of direction for the economy of next month and next year. When there is little to provide confidence, sell orders come in an avalanche, short selling steps up and people begin betting on falling stocks, not owning stocks.

This same lack of confidence can be seen in a review of major companies across the nation. With hundreds of new, costly regulations coming from the federal government, companies fear spending money. That fear extends to spending money hiring new employees. The regulatory environment has stymied business and produced a psychological malaise.

So as with the last article, my confidence is also damaged and my feelings about equities and their wealth-producing capabilities is at an all-time low. Stay tuned.