The Market’s Biggest Challenges

By Chloe Lutts
Editor of Dick Davis Digests

The Stock Market’s Biggest Challenge

The Experts Weigh In

What Do You Think?

What’s the biggest challenge in the market right now?

That’s what I’ve asked over a dozen investing experts over the course of this year, through market ups and downs, as part of my Dick Davis Digest Contributor Interview Series. What do you think they said?

To mis-quote our 42nd President: “It’s the economy, stupid.”

But it’s also the politicians who refuse to fix the economy, and a few other global economies. Or, as Benj Gallander, editor of Contra the Heard, put it: “In terms of the market specifically, it is the number of wild cards out there. An obvious one is the European difficulties. But the United States is in a horrible position financially and one has to question whether there is the political will to right the vessel.”

Harry Domash, editor of Dividend Detective, also said the biggest challenge to investors is “the inability of the Republicans and Democrats in Washington to work together to solve this country’s problems.”

Joseph Cotton, editor of Cotton’s Technically Speaking, also spread the bipartisan blame, but mentioned other economic issues as well, saying: “We think the biggest challenges to the market are the deficit, the Fiscal Cliff, the lack of accountability by our elected officials (Republican and Democrat) to what the voters want, and lower corporate earnings estimates because, generally, stocks go up with rising corporate earnings expectations, and they decline with lower earnings expectations.”

John McCamant, editor of Medical Technology Stock Letter, focused on sluggish economic growth, saying: “The biggest challenge is the economy. We need the economy to continue to bounce back and grow for investors to be interested in biotech/growth companies.”

And finally, Nate Pile, editor of Nate’s Notes, went macroeconomic, warning of “the ‘wait and see’ period that is still ahead of us with regards to the whole debt crisis/money printing ‘experiment’ that is underway around the globe. Unlike science experiments which can be done over and over again ‘from scratch,’ there is only one ‘global economy’ that can be tinkered with — and while the mathematician in me has a great deal of respect for the modeling of complex systems that can be done using today’s technology, I find it hard to believe that humanity will act anywhere near as rationally as predicted when push comes to shove in the real world. As it stands, as long as prices are able to rise or fall in a fairly stable manner, we ought to be all right while we work through things. However, whether it is inflation or deflation that ends up gaining the upper hand first, I believe history suggests that conditions are ripe for ‘the madness of crowds’ to set in and cause the move to become much more extreme than predicted by the models once it finally gets underway (which, of course, has the potential to temporarily derail any stock market rallies that may be going on when ‘the panic’ hits).”


There were a few other answers though.

For example, Al Frank, editor of The Prudent Speculator, mentioned all of the above, but is most worried about investors themselves: “While the twists and turns in the European sovereign debt crisis, subdued growth in corporate top and bottom lines, the slowdown in the rate of growth in China, the likelihood of higher domestic tax rates and a potentially nasty presidential election campaign are some of the challenges, fickle investor psychology is probably the biggest risk to stocks. We’ve seen markets suffer significant (though temporary) declines in recent years as ‘group-think’ has never been more prevalent and risk-mitigation has become the most important tenet for many investment professionals. This has exaggerated moves to the downside, though it has created fantastic entry points! After all, consider that the unemployment rate is the same today as it was in March 2009, yet stock prices on average have more than doubled!”

Adrian Day, editor of Adrian Day’s Global Analyst, also warned of investors themselves. He said the biggest challenge is “Investor disillusion—so many people lost so much money in 2008 (and unfortunately sold without waiting for the recovery) and they are unlikely to return to markets anytime soon.”

One other somewhat popular answer was high frequency trading. Joseph Parnes, editor of Shortex Market Letter, said the biggest challenge is the technical trouble high frequency traders cause markets, including “flash crashes.” Neil Macneale, editor of 2 for 1 Stock Split Newsletter, said, “The smooth and reliable functioning of the markets themselves seems to be a challenge we’re barely keeping ahead of. The astonishing growth of the worldwide 24/7 markets, the huge volume of computer-driven high-speed trading and the abdication of responsibility by Congress, our regulators and the market makers themselves are all developments I find very troubling. All markets rely on trust; strengthening the public’s trust in our markets is our most difficult but important challenge.”

Finally, one more technology-related risk was mentioned by Tom Bishop, editor and publisher of BI Research, who said, “When I started out, I typed the newsletter on a typewriter and used whiteout to edit what I had written. For a brief period in the early 1980s until I got my own fax (and PC), I’d drive to a store to pick up faxes on those occasional days when one came out with news on one of my companies. Today, news is available on the Internet the instant it comes out, and between news and other commentaries and blogs, it’s a constant stream that’s almost impossible to keep up with. And blog writers can say anything they want, and with the help of the Internet, they make sure you can find what they have written. Investors often take it as gospel, and with fees for trading at $9 now instead of $300, they can spook like a school of minnows, creating violent swings in a stock price within minutes. Articles (by shorts for example) that only a handful of investors would see years ago are now on the Internet for all to see right from the get go. It’s a tough environment out there (that I think needs more SEC scrutiny), and tougher to get an edge than it used to be.”

All that being said, I’ll close with a quote from Bob Brinker, editor of The Brinker Fixed Income Advisor, who responded to my question about challenges by saying: “I am an eternal optimist. As you look back in history, when has there been a long period of time without uncertainty or concern? Never! There are always very serious concerns and problems all around the world and today is no different. Investors need to build a long-term investment plan that will lead them to critical mass so long as they follow the steps. Make it easy to succeed and enjoy the journey.”

What do you think is the most serious challenge in the market right now? Do you agree with the experts who say it’s the economy, or do you have your eye on some more subtle but insidious issue? Or are you like Bob Brinker, aware of the challenges but also confident they’ll pass? Let me know by responding to this email, I’m curious to see your responses.


Chloe Lutts
Editor of  Investment Digest and Dividend Digest

Read more articles written by Chloe below:

How to Pick Dividend-Paying Stocks

How to Invest in Big Data


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