ADV: Upswing offers potential gains and a lesson!
Laura Kuntz
Sent: Fri 12/02/2011 4:15 PM
As I followed the big – 500 points! – upswing in the Dow Jones
Industrial Average last Wednesday morning (Nov. 30, 2011), I was
struck by an investment lesson imbedded in that upswing. (If you were
one of my 3 teenagers, right now you would now be rolling your eyes
and pulling out your phone!) This lesson is not new, nor is it exciting.
But, it is an investment truth.
What’s the lesson? We can’t buy stocks AFTER things get better
and still make substantial profits. To make those profits, we have
to buy before. We have to be contrarians.
How do I get that out of this upswing? Let’s start with some background.
Why did the upswing occur? Because central banks around the world took joint action giving
banks easier access to money, easing fears of a global credit crisis. But, did this financial easing
offer a fundamental solution? No – this easing did nothing to deal with the key issue, i.e.,
heavily indebted European nations. So . . . why the upswing? Per one commentator, “the bulls
are anticipating [emphasis mine] that this is just the beginning of central bank and other
actions to ease market pressures.”
We see that the stock market jumped based on “anticipation.” When stock traders anticipate,
sometimes they call it right, and sometimes they call it wrong (as we have just experienced with
our recent months of substantial volatility!). As the traders anticipate over and over again, we
get a lot of false starts. But, because traders are willing to make false starts, when
fundamentally good news actually does occur, some lucky traders will already have pushed the
stock market up on a “false start” that . . . worked.
And . . . here’s a key point: at that moment, it will generally be late in the game for us
to buy. A good portion of the upswing will already have occurred.
What should we do about that?
Here’s the other part of the lesson - we’re better off NOT playing the “false start game,”
but more so being contrarians.
After we carefully set our risk/reward allocation (think stocks vs. bonds) based on our situation
and preferences, we believe in . . .
o Buy moderately when the news is bleak, the traders are fearful, and valuations are low,
and,
o Sell moderately when the news is rosy, the traders are exhilarated, and valuations are
high,
o In other words, act as contrarians, focusing strongly on stock valuations.
Based on that, are there any actions you should take now, buying or selling?
 Stock valuations are modest, but not dramatically low. The U.S. economy is exhibiting

some potential brighter spots. But the European debt situation is as yet unresolved;
therefore, risks are reasonably high. All in all, right now is a good time to stick around your
target allocation.*
If you are a client, we’ll be contacting you to buy or sell as we see either attractively low
valuations or high ones. (Or, in some cases, we’ve recommended that clients put in
automatic “buy low order(s)” to seek to take advantage of volatility.)
As you, our clients know, our investment process is based deeply in your goals and preferences.
It also builds on the following principles:
balanced : consistent : aware : contrarian : tax efficient
So, being contrarian is not the only tool we use, but it can be a profitable one.
Please feel free to forward this email to others.
We welcome new inquiries! If our direction or holistic advice can be of assistance to
you, please contact us. Our services are best suited for clients who have $400,000 or
more to invest and/or would like hourly advice. The first consultation is complimentary.
Our best to you,
Laura
*For non clients, assuming that this is appropriate to your situation and matches your preferences.
L A U R A A. K U N T Z , C P A / P F S , M B T
Principal & Financial Advisor
OFFICES OF LAURA KUNTZ, CPA/PFS, MBT
RAYMOND JAMES FINANCIAL SERVICES, Inc.
8009 34th Avenue South #1495, Bloomington, MN 55425 | 952-854-6250 | fax 952-854-6276
www.laurakuntz.com
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