Stock Market Rebound: What Investors Should Do

Sept. 15, 2009 — -- Over the past year, many investors insisted on pulling out of the stock market and vowed to return only when they concluded it was "safe" to do so.

Now, with stocks up nearly 50 percent since a market bottom in early March, I'm sure many of those same investors are thinking this is the time to jump back in, that it is safe to invest in stocks.

I say, think again.

Looking for financial advice? Click here to send David your questions and they might end up as a topic for his next column.

I'm more worried about future stock prices now than when the Dow Jones industrial average scraped bottom at 6,440 on March 9. I'm not forecasting another big drop; I'm just a bit skeptical that the current six-month rally can be sustained at its recent pace.

Just as I doubted in March the stock market would fall an additional 40 or 50 percent, I now doubt the Dow will rise skyrocket another 50 percent over the next six months.

It is important to note that it is impossible to predict the short-term direction of stock prices. Few investors, if any, predicted the stock market would begin its recovery on March 10 and that it would make such impressive gains in such a short period of time. I certainly did not see it coming and won't claim that I did.

But for long-term investors able to demonstrate patience, in mid-March stocks seemed to be screaming, "Buy me, I'm cheap."

Now, that screaming has stopped and stocks seem to be whispering, "Careful."

What does this all mean for small investors?

It means go slow.