a sucker's rally?

an interesting quote from Business Week today (which speaks by itself!):

Stocks: Beware the Sucker's Rally

Have equities finally hit bottom, or is the market's recent rebound a trap for overeager investors?

Jim Leech "I think fear has just moved so far" (Globe and Mail -Derek DeCloet)

Derek DeCloet from the Globe and Mail interviews Jim Leech ("To the public, he may be best known as the private equity deal maker who snagged BCE last year, or perhaps as the new head of the Ontario Teachers' Pension Plan") who is saying that people might be overeacting to the current economical bad news.

I would tend to agree with him except for one thing: the current extent of the credit mess is not fully known yet and many more surprises might lurk ahead. It might be prudent to use these opinions as a starting point for resuming investing in the market (which a lot of people I know have stopped doing "until things get better") but buying by small chunks over a period of time. If the markets go up, then you will still profit and if they go down, then you have money left to buy stocks on sales ...

If I were only that smart!

I was looking forward to the post I made in June last year about selling stocks to pay my mortgage faster and figured I looked pretty wise when I said:

"and also being concerned about the current heights of the stock market, I decided to act"

I wish I could say for sure that I had seen the current downturn coming, but I obviously had no idea. I didn't know when it would be and how bad it would be. That said, there was a feeling of over-excitement in the market and the investor sentiment was at a very high as well. The problem is that I'm not sure what conclusion to draw other than the usual contrarian one : sell when people are buying and buy when people are selling!

Note that it's also easy to predict problems too long in advance like I reported on investor sentiment in December 2006 .