Hope to Prosper

The future of 2012 may be ominous based on the Mayan calendar, but it doesn’t look like the world is going to end on the stock market.  In fact, it looks like 2012 could be a pretty good year for investors.  It’s easy to be optimistic when thinking about a brand new year.  But, I have my reasons for being confident.

First Five Trading Days

Image by Fisherman's Daughter

One of my favorite stock market indicators is the First Five Trading Days.  Historically, if the stock market goes up for the first five trading days, there is a 69% chance the stock market will be up for the entire year.  The more positive the first five days are, the more likely it will be a good year.  For 2012, the first five trading days were definitely positive.

• Dow +1.43%
• NASDAQ +2.65%
• S&P 500 +1.82%

Stock market indicators shouldn’t always be relied upon, because they seem to fail investors at the worst possible time.  Many feel the First Five indicator is hyped more by brokers than is justified by the returns.  But, a solid start to a new year is always welcome, especially after the lackluster performance from last year.

The Economy is Improving

I wouldn’t say the economy is great, especially for the working class, but it is definitely getting better.  The stubborn unemployment rate is slowly dropping and consumer optimism is starting to return.  Retail sales are up slightly, especially for automobiles.  There is a lot of pent up demand from consumers who have tightened their belts for the past couple of years.  Their cars, computers and appliances are starting to wear out and need replacement.

The bad news for the markets is that profits are shrinking as companies are forced to hire and inflation is taking a bite out of their bottom lines.  They had a field day during the recession with drastic layoffs and squeezing the remaining employees for maximum productivity.  But, the tide is starting to turn and opportunities are opening up for skilled employees.  Wages will start to rise.

Continue reading 2012 looks like a Good Year for the Stock Market

Since 1992, I have had a goal of becoming a millionaire. I am on track to reach my goal before retirement age, but the stock market certainly hasn’t been cooperating lately. [...]

I’m not a Buy-and-Holder. I believe that Yale Economics Professor Robert Shiller’s research has shown Buy-and-Hold to be a gravely flawed strategy and that Valuation-Informed Indexing (which teaches that investors must change their stock allocations in response to big valuation swings) is far more sensible and effective approach. [...]