Dow Falls for the Quarter, But Don't Count 2014 Out Yet

Basing your conclusions on just the first quarter of the year isn't always a smart move.

Mar 31, 2014 at 4:31PM

Investors in the Dow Jones Industrials (DJINDICES:^DJI) are faced with something they haven't seen in five years: negative performance for the first quarter of the year. While the Dow's gain today could not wipe out the average's 119-point decline for the last three months, investors should remain optimistic that the stock market can overcome its winter slump and still post a gain for the full year.

Looking back at bad times
Fearful investors will focus on 2008, in which the Dow's 7.5% drop in the first quarter was merely a foreshadowing of things to come -- the blue-chip index eventually lost 34% on the year as the financial crisis forced the stock market down sharply. Those who believe the stock market has risen too far over the past five years of a raging bull market are concerned that 2008's history might repeat itself.

Yet what many investors have forgotten is that the Dow has often overcome first-quarter slumps to finish with a substantial gain for the full year. The much-celebrated 2007 was such a year, as a small 1% drop in the first quarter didn't hold back a spring and summer rally that sent the market to what would be its final all-time high for years. Even losses during the last quarter of 2007 couldn't keep the Dow from climbing more than 6% for the full year.

Even more telling is the index's streak from 2003 to 2005, in which the Dow lost ground during every single first quarter and yet managed to catch up and post gains on an after-dividend basis. The most remarkable year of the three was 2003, which posted a 25% gain for the full year coming out of the 2000-2002 bear market.


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What will drive the Dow in 2014
Investors need to remember that the Dow is only a conglomeration of 30 individual stocks, each of which can move in their own separate ways. Even with the Dow's decline, for instance, Caterpillar (NYSE:CAT) has managed to post substantial gains on hopes that it will follow a recovery in construction activity and a hoped-for bounce in commodity prices to regain more of the ground the stock has lost. Merck (NYSE:MRK) has managed to move beyond its patent-cliff woes of the past several years, and has recently had good news from its extensive and growing pipeline of drug candidates. Caterpillar and Merck might be among the strongest performers in the Dow, but the other companies in the average also have plenty of things going for them that could drive a rebound later in the year.

Many investors will look at the Dow's first-quarter loss and give up hope for 2014. That would be premature, though, and smart investors will look past the first quarter to find opportunities for profits wherever they may be.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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