Yoshikami: The Markets Will Not Drop 25%

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Recent headlines have suggested that the fiscal cliff and continuing struggles in the US economy will cause equity markets to drop in the next few months by 25%. (Read more: S&P 500 Facing 25% Drop Before US Election: Janjua)

The case is compelling as the US speeds towards mandatory budget cuts, undoubtedly more gridlock, unemployment that seems not to be healing as fast as the Fed would like, and the uncertainty related to Federal Reservepolicy.

I hear these arguments and understand them and believe that the case for significant fall in equities has some merit. But I believe the probabilities are that this will not play out as some have predicted. Here's why:

• Fundamentals suggest that stocks are fairly valued. While some may debate current valuation levels, cash flow and earnings suggest that the market is not massively overpriced.

• Stimulus efforts will continue on a global basis. While there is uncertainty as to the level of efforts that will be taken by monetary agencies, it appears likely that action will occur in an attempt to move the economy forward on a global basis. The United States, China, Japan, and Europe will all likely continue on an easing path that will lubricate risk assets.

• Monetary agencies are attempting to put a floor on equity markets. As real estate appreciation will likely not provide a stimulus forward economic growth, monetary agencies are keen to focus on a creating a wealth psychology effect with equity assets. Various pundits have likened this to monetary agencies creating an artificial floor to the equity market.

• While unemployment is high and negatively impacts millions of workers, the net result for companies is greater efficiency providing a corporate profit tailwind.

• While emerging markets have struggled, increased personal and business wealth is a reality. Consumption will be positively impacted as markets in emerging economies evolve towards a more balanced economic model.

• Interest rates remain low providing investors a phantom tax rebate. While real estate prices are disastrous, monthly payments are not and low payments provide greater dollars to spend on other goods thereby stimulating economic activity

• While politicians undoubtedly will damage investor sentiment by fiddling while Rome burns, ultimately I believe action will be taken in the next 120 days to moderate the impact of the fiscal cliff. Don't think for a second that the commitment made by the Republicans and Democrats for automatic spending cuts can't be modified. Just look at estate tax rates over the last 10 years and you will see that permanent changes can be modified depending on current conditions and political whims.

Understand, I am not suggesting that euphoria is merited; that would be foolish. Those suggesting the market will drop have legitimate points and I believe should be absorbed and processed as decisions are made. But my view is any drop will be limited to 10% rather than the larger percentage predictions made as of late.

Our perspective is a barbell approach makes sense in today's uncertain market. Invest in a conservative foundation names that provide ballast in times of market turmoil. Likewise, invest in assets that you believe will experience tailwinds in their sectors/industries and provide for higher growth rates. Cash flow names like Johnson & Johnson remain part of our portfolio strategy. But combined with conservative names, we also invest in beta assets such as Nuance , QUALCOMM , and Apple as a way to capture potential market upside.

As always, invest based on your risk comfort level. Remember that media headlines should not be what is driving your overall strategy and instead of thoughtful analysis of your goals (and willingness to absorb pain in market down periods) is what is necessary for a successful investment strategy. As a firm focused on wealth management, our perspective tends to be different than those chasing binary wins with resulting home run rewards or strikeout consequences.

Decide which type of investor you are before you invest and make sure they are overall strategy reflects your view of the world as well as the degree to which you can afford to be completely wrong. And always remember that no matter what you read, opinions change and strategists are fallible. It's a mistake to believe that anyone has all the answers; if they did they probably would not be sharing their secret with the world.

Michael Yoshikami, Ph.D., CFP®, is CEO, Founder and Chairman of the DWM Investment Committee at Destination Wealth Management. Michael is a CNBC Contributor and appears regularly on the network. DWM is a San Francisco Bay Area-based independent money management firm that provides fee-based wealth management services to institutions and individuals around the world. Michael was named by Barron's as one of the Top 100 Independent Financial Advisors for 2009, 2010 and 2011.