A Historically Bad 2008–But What Will 2009 Bring?

December 18, 2008

4: Shun Stocks That Are Weakening in Fundamentals: It’s easy to see why investors have bailed out of companies like Citigroup (C) and General Motors (GM), since these companies have a very uncertain future. But it’s equally dangerous for investors to sit in losing stocks and hope for the turnaround that may never come. Stocks in this group include companies like Google (GOOG), Apple (AAPL), Microsoft (MSFT) and General Electric (GE). If you own any of those stocks, I urge you to sell them as soon as you can and put your money behind fundamentally strong stocks. These companies may rise as the overall market rallies, but will never offer the same returns as stocks with growing profits and sales totals.

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What to Do Now

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5: Take Economic News With a Grain of Salt: I’m certainly not telling you to put your head in the sand, but please realize that expectations are often much more important than core numbers. For instance, it is pretty much a foregone conclusion that fourth-quarter GDP in the U.S. is going to be down significantly. But if forecasts are for a 6% drop and the economy actually contracts 5%, it means things aren’t as bad as they seemed. Everyone has come to grips with the fact that the American economy is hurting—that’s not news. What’s important is how the U.S. is fighting out of this recession and whether we are on the road to recovery or still feeling the fallout of the credit crisis a few months from now.