Tahoe Market Pulse: To buy … or not to buy?
Buying stocks is never easy. There are always reasons not to invest. Some wait until there is “better clarity,” but is it ever clear? If it is, I’ll go the other direction!
I’ve talked to people who say that stocks have moved too far and are too expensive, so they are waiting for a pullback. Some have been waiting years.
For those that hate to buy high, I’ve suggested areas, like energy, that were cheap and hitting lows. But investors find reasons not to buy low, too. They say these areas look bad or have negative news stories.
This year it worked to buy high. On the day of the election, the best performing style index ETF was iShares Small Cap Value (IJS), up 11.5 percent. After the election, it continued to lead and is up 33 percent year-to-date!
Buying low has also worked. The two best performing country ETFs over the last three months are Russia (RSX) and Greece (GREK). Both had been in bear markets.
The same is true for sectors where the laggards, energy and financials, are now the leaders. Let’s look closer at energy:
Oil bottomed at $26. Now it’s $53. Natural gas was well under $2.00. Now it’s $3.52. Some stocks have more than doubled from their panic lows.
What a difference the fracking revolution has made for the economy and our dependence on foreign oil. Trump will be friendly to the energy sector, preferring an “all of the above” approach to energy development even on federal lands currently off-limits to developers.
My favorite energy ETF is iShares Oil Equipment & Services (IEZ). As for energy stocks, a favorite is Enbridge (ENB), which will merge with Spectra Energy in the first quarter.
While Enbridge is primarily an oil infrastructure play, Spectra Energy is predominantly a gas company, gathering, moving, processing and storing the fuel. Demand is growing as coal-fired plants convert to gas. The marriage is a good one.
Here’s the bottom line: One can always find reasons not to buy stocks. But sitting on the sideline isn’t an option. Even a ten-year yield at 2.50 percent offers no appeal. Ten years of no income growth and a pre-tax, pre-inflation yield that is lower than many stocks that also offer dividend growth and more favorable tax treatment.
I can see pension funds buying the ten year if that yield works for them and their obligations. But investors? No.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.VomundInvestments.com 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.