WOW!… Is this market on a run! Investors are beginning to forget about the ‘lost decade’ that was and wonder how high this bull can go. I know this is happening because I am getting inquiries, from some of the same investors that wondered why they owned stocks four short years ago, as to why they don’t own more stocks today. Isn’t it time to go ‘all in’? Well, yes, it is. It would be great to only own stocks when they go up and not own any at all when they go down for sure. What a boost to returns that would be! SO why not just sit back and wait for Cramer to tell us the time to sell? If you have too much money, this strategy should be fine. Folks with more than enough can accept more risk and pay higher fees and barely notice. Active management and market timing is fine for these folks because the only game for them, really, is how much can I accumulate before I die. Hiring and firing managers feeds their egos and makes them feel important. Nothing wrong with feeling good about yourself and having cocktail party fodder I say.
But how about the rest of us? Investing and taking risk is a personal matter and the real purpose of investing is getting from point A to point B and reaching your own personal retirement goals. Taking on too much risk, getting caught up in the moment that is to say, can lead an investor to some costly tuition bills on investing. On hindsight, investors should not have exited the stock market in 2009 and, likewise, investors need to resist the urge to want to get ‘all in’ now. How high will it go? Some say the market is only going up because the Fed is fueling the rally with monetary expansion. Yep, true. Some say the rally is happening because the Fed has kept interest rates artificially low and investors have no where else to go. Yes, that’s true too. Others say that the economy is expanding after the crisis and the government has led us out of a near disaster. Yes, true again. Other say the market is simply coming back to the mean after many, many years of sideways moves (my personal favorite theory). Yep, all true. Point is, you can always find a reason for markets to go up or down. To invest or not to invest on any one reason, while it may make you feel good and smart, is not the way to long term success. Events happen and the market moves, sometimes with no correlation. What would the market be like if the Fed wasn’t involved? It doesn’t matter because the Fed is involved. You can’t change that. What would the market be like if the US ran a budget surplus? It doesn’t matter because we have a deficit in the trillions and growing by the minute.
So even if you can’t believe it, enjoy it. It has been a long time coming and over the long term stocks have been the place to be for growth. What comes next and how will the markets react? That is the question investors are asking now. Whether it will be inflation, deflation, war or a government debt meltdown, you can be sure the markets will react in the short term. Your reaction as investors will determine your future returns. As always, I advise taking some off the top when markets deliver outsized returns and adding to your equity holdings when the media has convinced us all that stocks are dead. In the meantime, remember that the less trading you do, the better your returns will be. That holds true for individual stocks and your mutual fund manager. The difference is in the trading! Take a look at your mutual fund turnover ratio. The higher the number, the higher the imbedded cost that comes out of your returns. Many times the best trade is the one you don’t do. The last time I bothered you with one of these letters I mentioned that the biggest returns come right at the end of a bull run. Speculative fever and momentum investing usher in the top of a cycle. Don’t get me wrong, it feels great to have the markets roar. People get into a better mood, spending increases helping the economy and a growing market cures a lot of ills in pension funds. I hope it continues as long as possible. All I ask is that you save a little powder and don’t think you need to move your allocation to all stocks (or bonds) now, I think you’ll be glad you did.