Can You Feel the Hope? Part 2

Last night on Fox Business Network's "Happy Hour" host Sandra Smith was interviewing a financial adviser from Pittsburgh.

The man was visiting New York and hanging out at the "Bull and Bear," the bar/restaurant from which the show is broadcast.

Since this adviser specialized in retirement planning, Smith asked him what he was telling his clients these days. His response: maintain a diversified portfolio and ride it out.

So here we have a small piece of evidence supporting the point I made in my post of February 22. The marked is being driven down by excessive hope.

The Dow has lost half its value. That means that if you could get a return of 8% on your investments it would take 9 years to get it back. And that is a very rosy scenario.

In response this adviser was optimistic and upbeat. To add insult to injury he was mouthing a formula that was conventional wisdom before the bear market began in earnest.

I hope his attitude was not influenced by pharmaceutical agents, but it was certainly disconnected from reality. If his clients are not enraged, they certainly should be. Financial advisers who talk as though nothing has happened do not deserve to stay in the business.

In the current environment, discussions between clients and advisers should dispense with the talk about restructuring portfolios and redefining goals. The first question should be: What happened? And that should be accompanied by an admission that the adviser did not see it coming, and that he too has been hurt by the market.

A financial adviser is not in the business of trying to calm frazzled nerves and tell his clients to ride it out. He should listen to what his clients are telling him and to take it seriously. If people are frightened and angry, they are not upset about nothing.

It would be nice if Happy Hour could do a follow up with the adviser from Pittsburgh. Then it would be able to plot the market decline by the look on his face. A true low will be achieved when the smile has been wiped off his face and he is quivering with dread.

Of course, there is more to market analysis than sentiment indicators. Ultimately, you need to be able to determine the value of what you are buying.

Anyone who is tempted to ride it out, or who is ready to believe that the next rally will mark the end of the bear market, should read John Mauldin's excellent analysis in his eletter, "Frontline Thoughts." Today's is entitled "Buy and Hope." Link here.

I would add that Mauldin sends these out weekly to anyone who is willing to give him their email address. Dare I say that this is an excellent value.