How to Ride the Waves in 2007

With the exception of China stocks, I’ve found that the last two months have yielded very few good stock market stories. And it isn’t due to a lack of trying to find good investment opportunities! There just aren’t as many good opportunities around as there were at the beginning of 2006.

From my own experience, I’ve always contended that great investment opportunities on the stock market tend to occur in waves. This isn’t a scientific theory, only an observation after years of following the stock market. Perhaps this is due to the prevailing economic conditions at the time, or perhaps changes in investor sentiment are behind the waves. There is, most certainly, a herd mentality in the equity investment business. Regardless, I believe that 2007 is going to be a tough year for stocks.

Many analysts thought 2006 was going to be a difficult year for the main stock market averages. Last year, stock prices ticked modestly higher in the first quarter, dropped quite a bit in the second quarter, and then moved solidly higher in the last half.

In any case, 2007 is going to be a transition year for equities. Most institutional investors don’t have a defined sense as to the stock market’s near-term direction. Everyone is waiting to see what the Federal Reserve is going to do mid-year. This is why I’m not expecting much from the main market averages.

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My best guess is that we’re going to see rangebound, lackluster trading over the next two quarters.

That said, if you own any gold stocks right now, keep holding them. Gold and other precious metals will do well this year.

I also think that the commodity price cycle will extend to most agricultural commodities this year. I predict that cash-cropping farmers will get good prices for their products this season. And one thing’s for certain: when farmers do well, the national economy does well. The great thing about agribusiness is that farmers always reinvest their profits back into the land and the domestic industry. Farmers don’t outsource their business to India.

So, at this time, all you can do as an individual investor is to keep riding your winning positions, cut your losers, and build a little stockpile of cash. I’ll keep looking for good investment opportunities in the stock market, and I’ll report any new finds to you.