When you are trying to figure out how long a fire will burn, you should not only look at the fire itself. You need to look at how much wood there is ready and available to be thrown on the fire. It is the same way with the stock market. You need to look to see how much un-invested cash there is on the sidelines. Despite the long bull market run we have enjoyed over the last 5 years, there is plenty of cash (dry wood) waiting and ready to be invested.
This remains one of the most unloved bull markets in history. Rather than hearing stories about great companies and brilliant CEO’s, we hear of a “Fed-induced” bull market. The talk is about an under-employed workforce that cannot afford to consume and of an America that does not produce anything anymore. The major media has this completely wrong again! Pessimism and fear have dominated while the market has climbed the “wall of worry”. Sadly, far too many individual investors have sat on the sidelines earning next to nothing in the bank. There is now over $1 trillion in the banks earning less than 1% in individual accounts with public companies also sitting on another +$1 trillion.
I was reading an article this weekend that quoted the great mutual fund manager Peter Lynch. He was saying how investors lost more money sitting out bull markets while “waiting for a correction” than they lost in the corrections when they happened! Even I got caught up “looking for the top” in August as the combination of a negative advance/decline line and the scary geo-political headlines got me un-nerved. Please remember (and this mostly for me!) – superior stock selection and disciplined portfolio management – not predicting the near future- are the keys the outsized returns in the stock market.
Yes I think we are in for a sharp pullback. No that does not prevent me from running The Magnet® Stock Selection model every week as I look for the best stocks to own (and the weakest to sell short!). I have my watch lists and alerts set. I expect that after a brief sharp pullback for the market, it will be ready to resume higher. The mountains of cash waiting to come in suggest we will see the market overcome any short term setbacks likely to appear in September. Stay cautious for now, but ready to buy the fear.
Longs- Rambus Inc. (RMBS) and some companies too small to mention.
Jordan Kimmel, Chief Investment Officer at Investview, Inc. (INVU).