I know that I’m putting a date on myself, but the title of this article comes from one of my favorite skating rink songs when I was a teenager.  “Clowns to the left of me, jokers to the right, here I am stuck in the middle with you…”

Sometimes it seems that way in the investment world.  Some clowns are always predicting that because of… (insert favorite reason here) the markets are going to suffer and we should sell everything we own and invest in…gold?  Then there are the jokers who predict that because of … (choose another favorite reason here), gray skies are going to clear up and it will be smooth sailing moving forward.

This was illustrated very vividly recently in a couple of different ways.  As we all know, June was a tough month for the equity markets.  The S&P 500 lost 5.2% for the month.  The index of large cap domestic stocks closed out the month at 1030.  On June 30^th, I read an article in Smart Money magazine entitled, “How Low Can the S&P 500 Go?”  The article discussed how technical analysts were predicting the index could drop to 1000, where it would find buying support.  The very next day, July 1, there was an article from a Wall Street Journal writer that had “Seven Reasons the S&P 500 Is Going to 1500” as its headline.

The Wall Street Journal writer didn’t give us a time frame for when the index would be 45% higher than where it finished the month, but gave some good reasons.  From an increase in the price of containerboard, to low interest rates that make it hard to find another place to put money, to almost $1 trillion in liquidity that companies are holding onto, he makes a great case for a rise in the markets.

So, as individual investors, what should we do?  Do we believe Smart Money or the Wall Street Journal?  But wait…before you make any moves in your portfolio, there’s more to consider.

On July 2nd, Businessweek magazine ran an article with the following title, “Krugman or Paulson: Who You Gonna Bet On?”  This article discussed how in the last week of the month, two very smart guys made very different predictions.  Paul Krugman, Nobel Laureate and professor of economics at Princeton University and editorial writer for the New York Times predicted that if the leaders of the developed world stick to the pledges that they made at the recent G-20 summit and actually cut government spending, the US economy will face not just a double-dip recession, but a full blown depression.  At almost the same time, John Paulson, the hedge fund manager who made a gazillion dollars by betting against the collateralized debt obligations that blew up when the housing market crashed, was addressing the London School of Economics.  His view?  That the U.S. is in the middle of a sustained recovery, the risk of a double dip recession is less than 10%, and that, in particular, our housing market is an attractive buying opportunity.

Again, the question is…as individual investors, what should we do?  As the lyrics to my teenage skating song says…” Trying to make some sense of it all, But I can see that it makes no sense at all.”

My advice has been, and continues to be, that you shouldn’t try to make sense of it all.  Don’t listen to all the noise.  Control what you can control.  Make sure that your portfolio is properly diversified across all the major asset classes.  Once it is, don’t pay any attention to the markets until your asset mix is out of balance because of movements in the markets.  When that happens, make the necessary trades to get your asset mix back into balance.  If you follow this strategy, you will be forced to buy low and sell high, which is the way the investment game is supposed to be played.

“Clowns to the left of me, jokers to the right, here I am stuck in the middle with you…”