Someone sent me this e-mail this yesterday evening asking me this question. I am posting the e-mail and my response so you can get a feel for the environment & how to navigate your investments.

Hello again Dan,

Its been quite an interesting few weeks lately and the shows have been great too. I had a quick question that related to your latest blog on European stocks.I'm currently holding shares of ArcelorMittal (symbol: MT) stock I had accumulated since around March of 2009 and actually added a slight bit about three weeks ago.

Right now It's currently down about 6% as of the end of Monday. I feel like an idiot for not selling when it was up huge, but I made the ultimate mistake and just stopped following my investments. I'm not overallocated in this stock, it's about 7 or so percent of my total portfolio. So I'm not freaking out or anything.

Also my time horizon for needing this money will probably be around 4-6 years.But with your bearish call on Euro stocks I did get a little worried. Should I cut my losses and just sit on the cash until a better opportunity arises? Because I would assume ArcelorMittal, as the global leader in steel, would still be able to make a profit if other parts of the world see growth, even if Europe stagnates.

What do you think? Thanks again,

Thanks for listening,

ArcelorMittal (MT) is a great company when steel is the right play. However, with Europe actually implementing austerity measures (cuts) which were announce last night (on 6/7/2010) in Germany, England, and I think even France, European growth is going to be hurt significantly.

They are collectively the biggest market in the world, slightly bigger than the US economy. This will effect growth worldwide, both is Asia and the US. In fact, 30-40% of the earnings of many S&P companies are derived from Europe.

Therefore the risk of deflation has increased somewhat if the Europe governments continue to follow through with their statements. Materials/industrial commodities dependent upon growth will be hard pressed until the rate of growth reverses (increases) or we have inflationary worries. Therefore, in my opinion, steel is not the place to be right now.

That is the technical answer about steel and your stock. Now for some philosophical answers to some of your points. You stated you were not overallocated (which is good) and your time horizon was 4-6 years.

Always remember, when it is time to buy it is time to buy and when it is time to sell it is time to sell, regardless of whether you have a gain or loss in that particular trade/investment. Also, I do not put much value in "time horizon" or "your risk tolerance." Those are Modern Portfolio Theory terms, which I do not put much stock in, no pun intended.

If it is a good idea and the time is right to invest, then is should be a good idea regardless of your age or time horizon assuming you don't put all your eggs in one basket and overallocate in one stock.

Therefore, your time horizon of 4-6 years is meaningless to me. Is it a good time for steel or not? The one thing I do agree with in modern portfolio theory is that you do have various investments and do not go overboard in any one investment because you will be wrong sometimes. You did that correctly, and that is how you manage risk.

In short, trade/invest in different things you think will have a good outlook going forward from today. As new information comes out about the economy, individual sector or stock, etc. make adjustments as necessary. Let the winners run but be careful to protect profits as they "roll over" and minimize losses on the ones that don't work out.

I have said it time and again, it is all about overall portfolio construction and managing risk. It is hard to give advice when you don't see the whole picture and don't know how the individual stock relates to the whole portfolio. However, until some things change, the demand and prospects for steel is not good.

Hope this helps,

Dan Stewart CFA®