7 Reasons Why Stocks Still Matter

After suffering through a wild ride the past several years, many ordinary investors have thrown up their hands in disgust. But stocks belong in many portfolios, and you shouldn’t banish them entirely and forever.

Investing in stocks can be maddening. Major market indexes regularly swing 2% to 3% in one day, sometimes in a few hours. All it takes is for a few traders or talking heads to react to a government economic report or to some development in a distant land whose leader’s name you couldn’t remember for a million bucks. For example, the U.S. stock market plunged 2.7% on June 29 on reports of weak home prices and consumer confidence. On July 22, the market jumped 2.5% following upbeat earnings reports from such bellwethers as 3M (symbol MMM), Caterpillar (CAT) and UPS (UPS).

In the long run, as Warren Buffett so famously put it, the stock market may still be a weighing machine—that is, it reacts over the long haul to key fundamental measures, such as corporate profits and dividends. But to say, as Buffett did, that the market is just a voting machine in the short run underestimates the degree to which today’s volatility makes the market look more like a crapshoot than anything approximating a rational measuring stick of the health of corporations, both here and abroad.

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Jeffrey R. Kosnett
Senior Editor, Kiplinger's Personal Finance
Kosnett is the editor of Kiplinger's Investing for Income and writes the "Cash in Hand" column for Kiplinger's Personal Finance. He is an income-investing expert who covers bonds, real estate investment trusts, oil and gas income deals, dividend stocks and anything else that pays interest and dividends. He joined Kiplinger in 1981 after six years in newspapers, including the Baltimore Sun. He is a 1976 journalism graduate from the Medill School at Northwestern University and completed an executive program at the Carnegie-Mellon University business school in 1978.