A Dow Investment Group Advisor Offers a Hopeful Perspective on Stock Prices - with the Help of his Puppy, Charlie

PORTLAND, ME, August 12, 2010 (Press-News.org) As discouraging as the investment world has seemed lately, signs point to a better period ahead, reports Russell Dow, President of Dow Investment Group. According to data compiled by Bloomberg, analysts project that earnings for U.S. companies will rise +36% for 2010 and another +18% for 2011.

"In the face of such good earnings news, many investors are wondering why the stock market recently failed to make further strides upwards," says Dow. To explain, he offers an analogy based on his experiences with his golden retriever puppy, Charlie:

Imagine that we were to look out the window and see a puppy wandering in the street. Suppose further that we are sufficiently interested (or concerned about an unleashed dog) that we want to know where he is headed. We see the puppy running forwards, backwards, sideways, then taking a nap. Moments later, he's up again running around, with no discernible travel direction.

However, suppose that we look further down the road and see a boy who is charged with walking the dog. We turn our attention to him. We observe that even a highly distracted puppy (like Charlie) will keep within a reasonable distance of his owner. Therefore, the dog's pattern is not entirely without direction; it only seems so in the short term.

As we watch the two together, we see that the puppy sometimes runs well ahead of the boy and sometimes falls far behind, but, as the boy steadfastly heads down the road, the dog too finds his way in the same direction. We might conclude that the best way to figure out where the dog is headed is to focus on where the boy seems to be going.

Now name the dog "Stock Price" and name the boy "Ernie" (for corporate earnings).

Like "Stock Price" following "Ernie", over long periods of time, stock prices have tended to track corporate earnings growth. During shorter periods, however, prices might exhibit the same lack of direction we find with the puppy.

If a portfolio is heavily weighted in companies whose earnings show strong upward movement, we might expect eventually to enjoy the companionship of higher stock prices.

As with all good things, patience and a disciplined approach help get us to our investment destination. That being said, it is tempting to take an occasional glance back at Stock Price just to make sure he has not left us altogether in pursuit of a squirrel.

The above is an excerpt from Russell Dow's Market Update for third quarter 2010, available at www.dows.com.

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Dow Investment Group, based in Falmouth, Maine, has provided sound academically based investment advice through 70 years of Dow family management. As President of Dow Investment Group, Russell B. Dow, J.D is proudly carrying on the Dow family tradition. Russell graduated from Cornell University in 1989 with a Bachelor of Arts degree in economics. He received his law degree in 1993 from the University of Connecticut School of Law. An investment broker since 1990, he is a member of the Maine State Bar Association, the American Bar Association, and the MSBA Trusts & Estate Section. Russell is founder and president of the Dow Software Corporation, developing investment and management computer software.