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Part 2: Whether the market goes to 1000 or 20,000, PB investment pros focus on clients' needs

Click here for Part 1: Whether the market goes to 1000 or 20,000, PB investment pros focus on clients' needs.

Ask Robert Harvey, of Harvey Capital Management, who has been managing money in Palm Beach for more than 40 years, if he thinks the market is going to fall to 1000 or 5000 and he'll tell you he doesn't think about predictions like that. What's important to him, with respect to market direction projections, is history.

"When you look at the history of the stock market, you'll see that we go through periods of flat and down. And even though the market has been flat for 10 years, the history of the 10-year holding periods are in your favor even though this last 10 years didn't prove out," says Robert Harvey, of Harvey Capital Management, who has been managing money in Palm Beach for more than 40 years

If there's an investment concern that Harvey currently has it's that the next market bubble could be in the bond market. With interest rates so low, once they begin to increase, the prices on bonds will fall." If your 30-year Treasury goes to 4 or 6 percent, you're bond is going to drop (in price)," he says.

And with so much debt in the country, whether it's government or personal debt, Harvey, like others, think that interest rates will have to rise sooner or later.

On the other hand, the market environment over the past couple of years has created a lot of corporate cash cows. As a result, he said that over half of the companies in his investment portfolio have more cash than debt. Harvey's words of advice for investors: "At the end of the day you want to own a company that when they sell their products and pay their expenses has a bunch of money left over."

Over the past few months Michael J. Dixon, director of planning and wealth management at Carl Domino, Inc., said he has been redefining the investment opportunities that exist in the market for his investors. With respect to fixed-income, he's looking at both sides of the market---bonds and dividend-paying quality stocks.

Although cautious about municipals, Dixon sees opportunity in other types of bonds. "Instead of our clients thinking just Treasury's we're suggesting that they open their minds to the possibility of investing in higher-grade corporates where they can get 4 or 5 percent."

Regarding dividend-paying stocks he points out: "There are some cheap values out there on quality companies where investors can get 3 or 4 percent yields on dividends. So they provide both---an appreciation opportunity and income."

In the end, while Prechter's forecasts about what's going to happen in the market in the future is one thing, Harvey's decades of investing experience has taught him something else: "You always invest into a world of uncertainty."

No matter what your take is on market forecasters, like what Robert Prechter writes in his newsletter Elliott Wave International, this stock analyst does make a point. It is that social mood drives economic and political activity and not the other way around.

That said, if you'd like to liven up the chatter at your next cocktail or dinner party why not bring up the subject of socionomics, as Prechter calls it. To help you lay the groundwork for creating some lively conversation consider the following:

  • Which came first? Prechter would say that a stock market crash doesn't cause a recession but rather that a change rise in pessimism caused the recession.
  • Prechter wasn't the only author. He first gained recognition after he and A.J. Frost authored the book, "The Elliott Wave Principle---The Key to Stock Market Profits".
  • There really was an Elliott. Prechter didn't come up with the Elliott Wave theory; Ralph Nelson Elliott did in the late 1920s. Prior to creating it, the general consensus was that markets behaved chaotically. Elliott, however, saw things differently believing that they traded in repetitive cycles-- much like the movements of wave formations--and found these cycles to exist in both bearish and bullish times. He deduced that the waves were a result of the dominant investor psychology.

In this day and age when examining investor behavior holds more credence than it has in the past, and we all more than likely would confess that moods matter in our investing behavior to some degree, perhaps Elliot was and Prechter is on to something. Then again, taking that something to the bank is another story.

To read more articles, please visit the column archive.

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