Liz Ann Sonders, Senior Vice President, Chief Investment Strategist with Charles Schwab & Co., Inc. has written a nice commentary article regarding the recent announcement by the fed of “Operation Twist”.

Please click here to read this commentary.

Mark Riepe, CFA
Senior Vice Prsident, Schwab Center for Financial Research
President, Charles Schwab Investment Advisory

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative (or “informational”) purposes only and not intended to be reflective of results you can expect to achieve.

Diversification does not eliminate the risk of investment losses.

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors.

International investments involve additional risks, which include differences in financial accounting standards, currency fluctuations, political instability, foreign taxes and regulations, and the potential for illiquid markets. Investing in emerging markets may accentuate these risks.

Respect the price action but never defer to it.
Our eyes are valuable tools when trading but if we deferred to the flickering ticks, stocks would be “better” up and “worse” down and that’s a losing proposition.

Discipline trumps conviction.
No matter how strongly you feel on a given position, you must defer to the principles of discipline when trading. Always attempt to define your risk and never believe that you’re smarter than the market.

Opportunities are made up easier than losses.
It’s not necessary to play every day; it’s only necessary to have a high winning percentage on the trades you choose to make. Sometimes the ability not to trade is as important as trading ability.

Emotion is the enemy when trading.
Emotional decisions have a way of coming back to haunt you. If you’re personally attached to a position, your decision making process will be flawed. Take a deep breath before risking your hard earned coin.

Zig when others Zag.
Sell hope, buy despair and take the other side of emotional disconnects (in the context of controlled risk). If you can’t find the sheep in the herd, chances are that you’re it.

Adapt your style to the market.
Different investment approaches are warranted at different junctures and applying the right methodology is half the battle. Identify your time horizon and employ a risk profile that allows the market to work for you.

Maximize your reward relative to your risk.
If you’re patient and pick your spots, edges will emerge that provide an advantageous risk/reward profile. Proactive patience is a virtue.

Perception is reality in the marketplace.
Identifying the prevalent psychology is a necessary process when trading. It’s not “what is,” it’s what’s perceived to be that dictates supply and demand.

When unsure, trade “in between.”
Your risk profile should always be an extension of your thought process. If you’re unsure, trade smaller until your identify your comfort zone.

Don’t let your bad trades turn into investments.
Rationalization has no place in trading. If you put a position on for a catalyst and it passes, take the risk off—win, lose or draw.

By: Todd Harrison

US investors are beginning to rethink the composition of their portfolios and become more risk averse. If people become more conservative, that could possibly create a deflationary environment, which is a positive for bonds, not for equities. Corporate earnings have been strong throughout this this crisis. If you would like to learn more, click here to go to an article from International Financing Review.

Terrific video from Morningstar regarding the current bond trends.

How can stocks be approaching an all-time high if the economy is suffering from high unemployment and sagging home prices?  Watch this great video from MoneyWatch for an explaination.

We found an interesting article on Morningstar today to share.  In spite of positive news recently in the markets and signs of renewed consumer spending, inflation continues to take its toll on consumer’s and businesses.  Consumer spending is line with positive projections, but Reports show that while “Consumer income reports continue to show healthy top-line growth, but when adjusted for inflation, incomes grew at a weak 1.2% annualized rate during the month of March”.

Furthermore:

“The big news this week was Thursday’s GDP report. While the headline growth rate of 1.8% was in line with expectations (and below the fourth quarter’s 3.1%), there was a lot of positive news imbedded in the report.

The slowing was due largely due to shifts in government defense spending and weather-related construction spending. Meanwhile, consumer spending fell far less than expected, and growth in business spending on equipment and software actually accelerated in the first quarter.”

You can read the full article, by Robert Johnson, CFA, and detailed report analysis here.

About the Author

Robert Johnson, CFA, is associate director of economic analysis with Morningstar.