For a couple of weeks high flying names in the market have been under some pressure as stocks in general seem listless or at least vulnerable. In fact, there is more talk of a bubble from smart people that have mixed track records (If that sounds oxymoronic it's because on Wall Street certain masters of the universe are ordained, and they can be wrong over and over again until they're right and the adoration begins anew). The stock market is on a tear to be sure, but this isn't a bubble atmosphere by any means. It's easy to argue that a pullback is overdue and that a correction would be healthy, beyond that the question of whether stocks should be crushed is misplaced.
I would agree the U.S. economy is still problematic enough to add doubt to current valuations and how much farther the market could move ahead.
This week we'll get the latest jobs report, which has a built-in excuse from the government shutdown but will just be yet another reflection of poor fiscal policy and the notion that redistributed confiscated wealth has the same impact of earned wealth and achievement (of course the government shutdown didn't stop the PMI number from coming in strong enough as to be considered an anomaly). The bottom line is America's economy is in neutral with countervailing forces. There is that DNA strand that pumps out entrepreneurs and people that fight the odds; on the other end, there is the creation of more and more people that live off others with pride: the former is scorned by the administration, and the latter cheered and encouraged.
Investors Riding The Wave
I've written about this in the past, but it's important to bring it up again (and again): the unrealistic demands of people that missed 9,000 Dow points. I'm on television six days a week, mostly discussing the stock market, economy, or political policy that informs both. For the most part, I have an amazing track record. In fact, it's poorly promoted on the air just how great the stock picking has been-for years. The good news is I've gotten people to invest; the bad news is I haven't shaken any poor habits or misconceptions.
There is so much information for investors and would-be investors to consider it's no wonder most stay intimidated and on the sidelines. But in the end they have to decide.
When they say "okay" I want in, many think past missed opportunities can be made up immediately. It's just one of many assumptions that create false feelings of early success or immediate feelings of failure. Interestingly for me the "bubble" question is answered when an avalanche of such fence sitters decides to join the fray at the same time and enjoy early success based on luck or circumstance (more buyers than sellers). We aren't there yet, but we have enough new accounts that I have spent extra time on establishing reasonable expectations and a road map that includes certain realities.
Losses are part of the process- AVP is my worst call this year and immediately brought out a couple of people saying they aren't impressed with the service after being on a month or two. My reply isn't nice to those kindss of emails or comments. The track record is amazing! If you are not impressed ... then you have no idea about the market. There have been a great number of ideas up 30%, 40% 50% ... yet the same people that made 200% buying Zale (ZLC) from my television comments, more than half didn't even know it was a publicly traded company but they had a loser and so it's not impressive.
I've been at this 28 years, and that mindset is doomed for failure. The way you mitigate losses is by having a balanced approach to investing. I have a camerawoman up 120% on LNG; she heard me mention it on television. For months I've begged her to accumulate other positions (I don't tell her what to buy, as a non-subscriber I don't want to deal with having to tell her when I think it's time to sell but she knows 100%+ is a level where common sense has to defeat greed). If you do not have a portfolio of ideas and aren't willing to hold at least three months but often longer for them to work out, do not call yourself an investor.
If your positions have to beat the market on a day to day basis you would be better off day trading, which is fine as long as you are prepared to really trade or find a local bookie, which is a lot riskier than day trading but requires less of your time.
The most important thing is investors returning to the market must brace for is disappointment. That was the same disappointment that kept them at bay for years. The thing is you can't avoid it from time to time, and the irony is the higher the market goes the more likely those late to the game will experience their worst fears sooner rather than later. At some point an avalanche of investors will return to the market, this is what history tells us. History also tells us that's the best sign of market tops (although the time line is longer than you would think ... two to three years of major inflows) or bubbles and we aren't even in the third inning of that happening.
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As for what starts that bubble bursting ... all depends on how smart the fence-sitters became during all those months of brooding and contemplating. Last week showed me many are still unrealistic enough to be set up for the really big fall that will be more self-fulfilling than a function of overvalued stocks.
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