I am somewhat confused about the parabolic rise in the equity markets. I believe there is "light at the end of the tunnel" but we are not there yet (imo).
I've been sitting on a hefty cash postion nearly twenty percent (20%) of my portfolio. I've been waiting for the proverbial 10% correction, but i'm still waiting. I missed the June mini-swoon and i'm wondering if we will get some type of entry point into the equity markets anytime this year! I'm trying to be patient, but it is difficult watching the indexes rise like this.
Moreover, the S&P 500 VIX is also relatively low; at last look under 13, which lead me to believe that a "correction" may be due.
Any thoughts and/or suggestions???
Thank you all
Comments
The market feels like it wants to go higher and I think you're seeing money coming out of fixed income. I don't think there's a "great rotation" and some of that money is going into cash, but I do think some is going into stocks (and some might continue to go into real estate) and that is going to increase if things continue as they have been.
People probably are not going to be given an opportunity if that's the case. The June correction was brief. There will be a correction, absolutely, but with the momentum as it is, you may wind up continuing to wait.
I wouldn't pile in at this point unless you get specific events (something like what happened to Visa.) I don't think the market is "cheap", although that's so specific to sectors.
Emerging markets likely present some value at this point. I cannot imagine the disconnect between EM and developed markets continuing significantly longer. I think there are opportunities in Europe. If you are too US-heavy, this may be a time to be more globally diversified. If you do buy into anything, I'd carefully DCA.
It becomes this: you have the amount of money in the market that you want to risk. You have risk in the market that is right for you and allows you to be comfortable and sleep well at night. I'm comfortable with a combination of themes that I believe in and want to participate in long-term combined with nice yields. What is "comfortable" in terms of investing is going to vary for everyone.
That being said, once investors get complacent, we should expect a strong pullback. For now we climb the wall of worry. There's that QE taper issue on the horizon and current valuations are not cheap. An article this week aptly named it the "zombie" stock market.
I think the most promising thing about equities is the perception that bonds are dead money for the next few years at least, so where else do you go?
(Mortgage apps this morning fell to a 2 year low - http://blogs.marketwatch.com/capitolreport/2013/07/31/mortgage-applications-slump-to-two-year-low-in-worrying-sign-for-housing/) There also seems to be a desire to off-load rental housing on investors - whether via a poorly received IPO ("American Homes 4 Rent") or via securitization of rentals by Blackstone and Deutsche Bank.
Whether or not that is because of a top in housing (although again, it's rather remarkable given historical rates how much desire for mortgages goes down once mortgage rates start pushing towards 5%) or because this bizarre decentralized business model of having thousands of single family rentals to somehow keep tabs on (how are repairs handled?) is much worse than the centralized model of an apartment building, I don't know. Given how badly the single family REITs have done (see SBY), it may just be the business model was flawed.
I do think that housing has bottomed, but expectations - despite a way strong desire to keep rates low - have gotten ahead of themselves and any housing gains going forward are going to be much more realistic. I wouldn't be in bonds as I just think there's more downside than upside, but I do think it would be concerning to the Fed if rates went in a hurry to 3% on the 10yr.
I agree with Skeeter, especially re energy and telecom. The latter I think is a must to have exposure to. In terms of mobile, AT & T noted on CNBC the other week that mobile data demand was +50% y/o/y. Look at Linkedin, Facebook, Yelp this week. Conservative investors may not want to go near those names, but you can get a VZ yielding 4%, or look at Cisco, yielding 2.6% or a telecom fund.
Something more aggressive would be a T Rowe Price Telecom/Media (PRMTX).
It doesn't pay a dividend and has gone up quite a bit, but I do continue to like Liberty Media (LMCA), a media/telecom conglomerate chaired by the famed John Malone. There's also Liberty Interactive (LINTA) and Liberty Ventures (LVNTA) in the Liberty family (and Starz was also a spin-off of Liberty.)
Cisco's "The Internet of Everything":
http://newsroom.cisco.com/feature-content?type=webcontent&articleId=1208342
"In 2012, there were 8.7 billion connected objects globally, constituting 0.6% of the ‘things' in the world. In 2013, this number is exceeding 10.0 billion. Driven by reducing price per connection and the consequent rapid growth in the number of machine-to-machine (M2M) connections, we expect the number of connected objects to reach 50bn by 2020 (2.7% of things in the world). We expect connectivity costs to reduce at a 25% CAGR during 2012-20, which is approximately equal to the growth in number of connected objects (implying price-elasticity demand of 1). Lastly, we believe that more than 50% of the connected objects added during 2013-20 will be added in the last 3 years of the decade. This also implies that the maximum connected objects are likely to be added when the connectivity costs are the lowest."
Verizon M2M (although many of the major carriers have exposure to M2M:)
http://www.verizonenterprise.com/solutions/connected-machines/
I have been selling equities down since the first of the year and have raised my cash level to about 20% in my portfolio as I feel equities, in general, have been overbought for sometime now. In addition, I am about 30% income, 40% equity and 10% alternative as I write.
I too have been looking for a pullback and most likely it will come when we least expect it. In addition, my portfolio kicks off a good income stream and with this I have recently (last 30 days, or so) been adding to existing funds that hold good representations in the energy, materials and communication sectors which according to Morningstar are oversold by about ten percent. I have also been adding to my funds that carry a good representation and exposure to Greater Europe which I feel is much oversold at the present time. I am not a momentum investor so I went to the areas of the market that I felt offered the best value, in my thinking, rather than to continue to increase the size of my cash position.
So if you have the itch … and can not resist … I’d position cost average in to the areas of the market you feel have the best present value rather than chasing the in vogue assets. I have found through the years it is much harder to make good money when putting new money to work when the market is at, or near, 52 week highs. I much rather buy new positions and/or add to existing positions during a good pullback. But, at 20% in cash ... as I am ... I just did not want more cash.
Hope this helps …
Skeeter
regards,
Ted
The only point I'd make is that having a well thought out plan is what really matters. Sounds like you have one. I don't fret much which way Mr. Market's going to go this week - or even this year. It's immensely entertaining and often instructive as well. But over the decades we'll hopefully be investing, the immediate market gyrations are litte to get excited about. I've lived through the crash of '87, the market mania of the 90s. the tech bubble and subsequent wreck of 2000, the Bush v. Gore mess, the aftermath of 9-11, and the 50% pummeling of '07-09. So, what's new? Markets go up. Market's go down.
Like Skeeter and some others, I attempt to go a bit lighter on equities in heady markets and put the $$ to work in down markets. The sums involved are relatively small, but I feel better doing that, and it's been somewat effective for a long time now. These in-between time spans can seem painfully long, and that's what I'm picking up as the sounce of your frustration. Regards
So this lady needs her bonus. I think BofA all by itself will take market to 1750. Let me make prediction now market goes to 1800. This way you can either laugh me off the board if it does not happen or forget you knew an expert who id.
But here's why market will continue to go higher. I'm in liquidation mode. When I start buying I will tell you. Then it will tank
It is all these thoughts and different perspectives that make the market. If everyone had the same thought and perspective we would not have much of a market. Remember, for every seller there has to be a buyer.
I'll make more money in the near term if the market hits your traget of 1800 than I will if it pulls back. However, I think I'll wait for the pullback before I do any serious buying. And, yes, I am still with my program ... book some profit along the way before it gets vaporized.
I never met a farmer that could take spoiled crops to the market.
Take care ...
Skeeter
I have 20 years before retirement and am a growth investor for the most part. I can tolerate some volatility and stayed in the market during the last big swoon.
But what seems (to me) to be a bit of "irrational exuberance" and complacency (measured by VIX<13) has me concerned and confused. I can handle a downturn (7%-10%) but i feel the further we rise straight-up the deeper the correction; maybe 15% - 20%. That I don't want to get caught in but I certainly would invest at that point though!!!
I'm not a market timer by any stretch, but buying on significant dips seems to make a lot of sense and often works from what i see.
Like I stated before, I do believe there is "light at the end of the tunnel", but IMHO, not in the imminent future. What is going to happen whe QE3 ends, interest rates rise, etcetera??
Any futher thoughts and comments are very welcome!!
IMHO, one big reason people retire without enough is because they rely on the bulls*** fed to them. Assumptions of asset allocation, assumption about how much market will return on average (till it does not), about buy and hold, etc, and most of all because at 35 people are told they will work till 65. Then at 55 you lose your job and never get the same one back and maybe don't get to contribute to 401k to cost average and compound like expected. And all your calculations go to hell. And then of course throw a couple of 50% drops in the stock market in for good measure.
I think THIS is the most important lesson people need to learn. Loosing a lot of money at ANY point in time is a BIG problem even with compounding. People have lost 50% of their 401ks TWICE in the past 14 years. Even if they could have managed to lose just 25% each of those two times, the difference that would make with compounding by the time they retire at 55 or 65 would be more significant than anything else.
Personally, I no longer invest based on any assumptions of average returns over the coming years. I solely do so in trusting managers who eat their own cooking and hope that increases my chances of succeeding in my investments.
Best.