Today's Losers May Be Tomorrow's Winners

Eventually the markets will rally, and when they do most people will make the critical mistake of selling the moment beaten-up financial names get a bid. Indeed, after the tech bubble burst, many investors swore off technology stocks forever. And in late 2002, just as that pessimism peaked, just when no respectable money manager would even consider putting cash into a technology stock, tech and dot-com names began a dramatic rally that saw many climb triple digits.

After the Fall, a Second Coming

AMEX Interactive Week Technology Index: October 2002 October 2004

That investors are abandoning the stock market wholesale illustrates how deep today's pessimism runs. As reported in The Wall Street Journal, investors are yanking record amounts out of stock mutual funds, including a historic $72 billion in October alone. This weekend, as I attended a number of holiday events, there was palpable fear among wealthy and nonwealthy investors alike.

People were told to diversify, to dollar-cost average and to stay in it for "the long haul." Over the past 10 years, following these rules has lost you an immense amount of money. The Bernard Madoff travesty only further reinforces this negativity and belief that the stock market is a loser's game.

And in the midst of a bear market, it is. But if 2008 has demonstrated anything, it's that one can't look too far into the future when it comes to the markets. Just as the environment in February was much different than it is today, it's quite likely that in six to 12 months the picture will have again shifted dramatically. It could be better, or it could be worse. I don't know for sure, nor do you, nor does anyone else. The point is, avoid making any comprehensive decisions -- "I'll never buy a bank stock again!" -- until the picture becomes more clear.

It's my sincere belief that markets' weakness this year has been due less to economic factors than political ones. The credit crisis started in the summer of 2007, but markets only became unhinged in March, once the government stepped in to bail out Bear Stearns. Since then, we've pumped upward of $7 trillion into the economy with virtually no beneficial effect. Once the intervention stops, or at least slows, I'm of the mind the markets will again begin trading in a more normal fashion.