Since mid-July when the Dow Jones Industrial Average first reached 14,000, the market has soared, dipped and dived, and led investors on a wild ride. Despite some scary moments, we’ve seen nothing to rival the recent crisis in credit markets. Fueled by the initial melt-down in the sub-prime mortgage sector, the meltdown in the brokerage sector has been described as one of the worst financial calamities to hit Wall Street in years. At a time when Lehman’s executive leadership is applauded for holding the firm’s third quarter losses to a mere $700 million, and Merrill Lynch declares the largest loss –a write-down of some $8.4 billion— the individual investor might want to avoid major action or changes in investment strategy. Though some pundits may not be daunted, the staggering third quarter write-downs posted by leading financial institutions have made even the most seasoned market experts pause for thought. Many are urging investors to stick to a disciplined long-term strategy, and to avoid bottom-fishing …for a while. Here’s an overview of some of the viewpoints –cautious and otherwise— out there.

The more cautious pundits suggest that investors:

• Stick to a disciplined approach. Don’t sell into panic or abandon a long-term strategy because of sharp changes in market sentiment.


• Recognize that it’s too early to bottom-fish in the mortgage and housing markets. The shakeout is not over.


• Avoid financial stocks for now. Some of the most esteemed names in the credit markets had more exposure than they calculated (even the horrendous losses posted by Merrill Lynch were based on what the firm called “quantitative analysis” – which means firm numbers have yet to be tallied).


• For those who want to avoid the equities market for a while, short- and medium-term CDs offer some peace of mind because they are government insured and offer attractive yields.


• Avoid leaving substantial funds in bank savings accounts where they’ll generate a measly 0.5 percent return (based on average returns reported by Bankrate.com).


• Think through the extent of the possible fall-out. Apart from obvious candidates like the aforementioned financial giants or mega-stores that cater to the home buying sector, other sectors may yet to reveal their vulnerability. The third-quarter earnings posted in October offer some possible clues. Whirlpool met profit expectations but announced an unforeseen shortfall in appliance sales. Other possibly vulnerable sectors include paint companies, furniture companies, and carpet manufacturers.

More adventurous stock market gurus (who are not averse to risk) predict what they believe will be an inevitable resurgence in the financial sector. They point to the recent private equity boom which continued with business as usual with the takeover of Texas Utilities whilst the sky was falling at Merrill Lynch. They suggest that some financial stocks may have taken more of a beating than they deserved, and that judicious selection of such stocks might be worth considering.

In times like these, the advice of your professional investment advisor and tax consultant is especially important.