Market Pulse: Expect, but don’t fear, a market pullback
March 12, 2014
The bull market had its five-year anniversary. With stocks up 180 percent, investors are finally warming up to stocks. Investors poured $24 billion into U.S. stock funds already in 2014. This tells me it's time for some fear to return to the market.
One of the easiest things to do when forecasting is merely to extend into the future the current trend in a straight-line fashion. Easy, yes, and mindless, too. It's usually wrong and costly. For example:
Fourteen years ago technology stocks were all the rage after they had already doubled or tripled or quadrupled (or risen even more). Like trees they would grow to the sky, we were told.
Then Internet stocks collapsed and even today most are far below their 2000 peak. The collapse showed how out of whack prices were at the top, driven even higher by those who for months paid more and more for less and less as the bubble inflated. Greed will do that. Fear has the opposite effect.
At the worst of the financial crisis post-Lehman in 2009 when bank stocks were plummeting, the collapse of the financial industry was imminent, or so we heard.
No it wasn't. Those financial stocks so destined for the scrap heap were terrific buys for those who didn't simply assume that the steep downtrend would continue.
Wells Fargo was $8, now it's $48. Goldman Sachs has more than doubled. Buyers paid less and less for more and more.
Today's market is up for some profit-taking. When this happens the familiar naysayers, call them perma bears, will be paraded on the financial networks. Many of these people have made careers predicting things that don't happen. Don't let them scare you.
It's important to remember that every long-term chart of the stock market starts in the lower left corner and moves to the upper right corner. For people in their 30s, 40s and 50s, and to a lesser extent older (let's say "wiser") investors, appreciation had better be the goal, one that can't be reached by sitting on the sidelines. There are few good alternatives to stocks.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.ETFportfolios.net or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
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