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Advisors: Investing Today Requires Sound Judgment

Stocks fell slightly in early trading Tuesday after earnings season began with Alcoa Inc. coming up short of analysts’ expectations, according to The Associated Press.

The pullback comes a day after the Dow Jones industrial average closed above 11,000 for the first time in 18 months. Stocks have been climbing steadily in recent months on signs of economic growth.

Hitting 11,000 this quickly seemed nearly impossible when the Dow Jones was in the 7,850-range just a year ago.

Locally, Financial Advisor Ryan Garrett with Edward Jones in South Boston said investors should not get caught up in the psychology of the market, but rather should base investment decisions on the fundamentals of the companies in which they seek to invest.

“In 24 years investors really haven’t changed,” Garrett said.  “Folks really do react the same to event, after event, after event.

“As soon as the market started going up, I see people making many of the same decisions,” he added.  “Being a bad investor is in our DNA.”

Garrett explained, saying, “People’s risk tolerance dictates they should be selling, should be re-balancing, but they don’t.

“It’s amazing, people really resist doing the right thing even after everything we just went through,” Garrett said.  “But it’s human behavior.”

Garrett explained that investors get excited when the market goes up, like it is currently, but that investing decisions should be based on fundamentals, not excitement, and not necessarily what the Dow Industrial Average is doing.

“I don’t measure the Dow,” Garrett said, noting, the “all boats rising” theory of investing is over.

“Everything was oversold for the most part,” he said.  “But now you really have to be a good stock picker.  There are always things that are buys.

“Many of the stocks that went up the most were the ones that folks thought were going to go out of business, but they didn’t,” Garrett explained, noting some $70 stocks went all the way down to $2, but have since rebounded to $10.

“The lowest rated stocks, those are the ones that go up the most, first,” he explained.  “What gets ignored are some very good companies.  There’s lots of those out there.”

For those who want to invest but don’t fancy themselves ‘stock pickers,’ Garrett said there are other options.

Mutual funds and equity-traded funds (ETFs) offer investors broad exposure to the market with a professional at the helm.

“Mutual funds are the safest strategy,” Garrett said.  “They (fund managers) won’t always get it right, but they’re looking at fundamentals.”

Garrett added that most brokerage firms also offer an advisory service where an investor’s stock, bond and cash portfolio can be automatically adjusted based on the investor’s risk tolerance.

“That helps people not have to make the decision themselves,” Garrett said.