An Investment Frame of Mind – For Six Months Out

Tuesday, January 5, 2010

x-Wall St & flagsYesterday I explained the two aspects of a frame of mind that I believe will produce good investment results: (1) an expectation that historical beliefs and culture will continue to drive American life and (2) a focus on the future. Here is what those combined aspects give us…

This composite frame of mind provides a powerful mindset. With it we make use of what we already know about the US – its historical development, internal characteristics and driving forces. Knowing (okay, expecting) that radical change is not in the cards removes a large dose of uncertainty. Note that this “history will repeat” belief isn’t one based on simplistic graph or number analysis. Rather, it is the use of our understanding of what makes the US tick – and, by living in this country and being knowledgeable and aware, we know that well.

So, historical America provides us with future America’s drivers. Now, let’s bring in the future. As I said yesterday, there are two key periods to look at: six months out and five years out. Today, let’s look at six months from now.

We’ll be in the summer, celebrating July 4, 2010. The October 2008 and March 2009 bear market bottoms will be far behind us. The economy will have continued growing, bringing along employment, production and housing. Interest rates will have risen, restoring income flow to savers and the US dollar’s value. It doesn’t matter what the rates of improvement are, just that the upward trends that started last March have continued – and that is the prevailing forecast.

With the trends firmly established, the America we know will be back. Consumer confidence will have risen and we will be returning to the business of life with the restorative powers that summer brings: long days, casual attire, outdoor projects, barbeques, picnics and family vacations. Thoughts of a shiny new car, a room makeover or even a new house will be back.

The move from uncertainty to normality is just the thing for earning good investment returns from stocks. And US stocks in particular, because that’s what we know best. Now that we are fully into 2010, we can focus on this year’s corporate earnings forecasts, and they are looking good. Combined with attractive dividend yields, owning US stocks now could be the most rewarding investment for the year – just the thing to allow removing black crepe from our 401(k) and IRA statements.

Tomorrow, we will take a look at five years out – and dream a little.

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John Tobey on Seeking Alpha

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January 2010