CAMPUS

Should I Buy Stock?

One of the advantages to being a student is that I have the opportunity to speak to so many people from different walks of life during the day. It seems that many investors who previously pulled their money from the market are now considering re-entry. Everyone from my fellow economics students down to the gentleman who runs the local post office have excitedly told me about how they will be “buying low” now and “selling high” in a year or so and make a ton of money. Like all get-rich-quick schemes, you should be suspicious of this argument. If you are in your kitchen preparing dinner and you drop the knife you are cutting with, will you move to catch it by the blade in mid-air? Of course not. The prudent course of action would be to allow the knife to hit the floor and to pull it up by the handle once it has stabilized. In much the same way, potential investors should be wary of “cutting themselves” by trying to guess where the bottom of the market is. The fundamentals of the economy are terrible. The Leading Economic Indicators are the worst they have been for years. I believe that today’s rally is more of an aberration than a sign of a real turn around. Once we start seeing the initial jobless claims fall back below 400,000 (today’s initial release was well above 500,000) and consumer confidence rising, investors might be better off with medium term treasury bonds.