Market may offer chance to buy


Published: Wednesday, January 23, 2008 at 6:01 a.m.
Last Modified: Wednesday, January 23, 2008 at 12:04 a.m.

Local financial advisers and experts said they were not surprised by the dip in U.S. stocks Tuesday on the heels of drops in world markets and considering ongoing struggles in the U.S. economy.

The question now is how soon markets will recover and what can investors do to hedge against continued volatility.

While some of the decline was an emotional response to world markets, stock prices are devalued by a definite decline in corporate earnings, particularly in the financial sector, with some spillover into retail, according to Michael Ryngaert, Warren Buffet professor of finance at the University of Florida.

If the nation slips into recession, Ryngaert said we can expect earnings and stock prices to get worse.

However, a correction in stock prices means they are priced reasonably in relation to their earnings over the long run, making them a good buy, he said.

Jeff Davis, president of Falcon Financial Management, said he doesn't think Tuesday's dip is the end of the stock slide, although he doesn't foresee a 60-80 percent drop that lasts a few years like past recessions, as some are predicting.

"I do expect to see it down in the 10,000s before I see it back at 13,000," Davis said of the Dow Jones Industrial Average. "We expect to see another 10 to 15 percent drop in the market."

Lower prices will likely mean lots of buying opportunities by this time next year, Davis said.

W.G. Rossi, financial adviser for Koss Olinger Financial Group and president of the Gainesville Association of Insurance and Financial Advisors, said investors should expect continued volatility this year.

"We have the election, we have a lot of geopolitical volatility out there with oil prices, with the credit crunch, with the housing crisis," Rossi said.

However, employment and wages are strong, providing a counterbalance, he said.

Rossi advises investors not to shift funds in reaction to the market. Instead, they should make sure they are rebalancing their allocations over time.

"If you were 50-50 stocks to bonds, with the market's run the last five years if you didn't rebalance you might be 70 percent stocks and 30 percent bonds," he said.

Davis said he started adding more bonds to clients' portfolios two months ago in response to the Institute of Supply Managers Index, which measures raw goods purchased for manufacturing and servicing sectors.

"We saw the economy beginning to contract," he said. "We've been talking about this to our clients for two years. The market has been so good, it had to happen. Bull markets follow bear markets and recessions follow expansions."

Ryngaert said it is important to remain diversified and not totally divest from stocks.

"Your house is a big part of your portfolio," he said. "You should have an insurance policy in place. You probably want to be 60 percent stocks and 40 percent a fixed income type investment. If you're getting closer to retirement and you're concerned with the market gyrations, it might be smart to take down your percentage of equities to a lower level, 30 to 40 percent. But younger people can afford to be a little more aggressive."

Another strategy in the face of uncertain market volatility is to prepay a mortgage, Ryngaert said.

"If you've got $50,000 sitting around and you could invest or pay down your mortgage, your mortgage is costing you 6 percent. You've got to get at least 6 percent on an investment to justify it."

Anthony Clark can be reached at 352-374-5094 or anthony.clark@gvillesun.com.

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