The equity markets recently reached all-time highs. Did you celebrate? Because I didn’t, and as far as I can tell, neither did anyone else. No party hats or leftover confetti were found on the floor this time around, and that’s a problem.
Markets could fail for a million reasons. Most are very specific reasons that reflect real economic issues. On the economic front, for instance, the U.S. carries too much debt.
Productivity is low. Bank borrowing is off. Business capital investment is down.
Then there’s the problem of falling corporate revenue and profits over the past year. If the fundamental reasons aren’t enough, there remain technical reasons to panic, like nose-bleed high price-earnings ratios.
TINA – Invest Actively
As for staying invested, that’s a lot harder to defend. There’s the old “TINA” saw that stands for There Is No Alternative, implying that investors who need growth must remain in equities because bonds pay almost nothing and commodities have been in the dumps for years. That’s a nice sentiment, but it comes at the risk of losing a big chunk of your net worth.
There’s always the view that investors should jump into stocks because they’ve been going up in spite of all the problems in the world, but that’s like driving by looking in the rearview mirror. As long as the road ahead looks like where you’ve been, everything is fine. Unfortunately, you won’t see the upcoming curve in the road until you’re flying into the ditch.
So far, I’ve only touched on issues in the financial markets, but we all know that the financial world coexists uneasily with the political world.
Politically, we have Vladimir Putin creeping throughout the old U.S.S.R. playground, a refugee crisis spreading in Western Europe, an ugly political contest here at home, and central banks around the world desperately trying to affect change when their own governments are too timid.
This results in the standoff we face now, where central banks can’t make more progress and government officials won’t offer up real solutions for sagging infrastructure, aging populations, and exploding benefit programs.
It’s enough to make any sane investor want to take his chips off the table and go home. But you can’t… or at least, you can’t stay out of the markets for long. Most of us need the growth. We need our assets to increase over time so we can afford the lifestyle we want in retirement.
Sitting on the sidelines might save us from an ugly downturn, but staying out too long, or waiting for just the right moment to jump back in, could cost us precious returns.
There is an alternative. We don’t have to leave our fortunes invested, hoping that the textbooks are right about equities going up “over time,” even though the situation looks bleak. And we don’t have to give up on growth, resigning ourselves to the paltry gains of CDs or corporate bond yields. It might be true that the “easy” gains of the market are past
If you’re not sweating you’re not trying
But that doesn’t mean that all the gains are gone. From here, it takes work.
And a system.
The equity markets reached their previous highs in the spring and early summer of 2015, then saw two ugly spells before regaining those highs in the last few weeks. Investors that remained through that might have seen profits for their pain, or not. The problem is that not all investments are equal.
Just 10 stocks are responsible for more than 70% of Nasdaq gains so far this year. If you don’t own those stocks, or hold them in significant sums, chances are your portfolio is lagging.
From here, Harry Dent expects the markets to take a turn for the worst, potentially dragging down equities and bond prices at the same time. It would be a cruel twist of fate for investors to take a big hit now after sticking it out through the craziness of the past year!
For protection, investors should ask themselves one simple question about each security they own… Why? Why do they own it?
Is it a “story” stock? Did it have a good run in months or years past, and romance you so that now you just can’t let it go? Did you read about it in the news? Or is there a specific, investable reason for holding that security today, with a target for selling it on the way up, as well as cutting your losses on the way down?
Cycle 9 Alert
In our own business, we use Adam O’Dell’s Cycle 9 Alert system to provide exactly that. Quantifiable risk, with identifiable rewards. He doesn’t buy the “market,” and he doesn’t hold investments for long.
The goal is to find opportunities that have the highest chance for success in a short period of time, so that we can make our money and move on. This approach has treated us and our readers well for five years, consistently beating the markets and chalking up several eye-popping returns along the way. It doesn’t mean every position is a winner, but most are, and we know why we hold every position.
So, as we go through what is typically the worst calendar quarter for equities, and we watch the markets dance around all-time highs that have made no one feel good, take some time to review your portfolio. Do you have a systematic approach? Do you know why you own each security?
If you answered, “Yes,” then great. But if you answered, “No,” then commit to the work of implementing a system that can potentially hand you gains while helping you avoid a likely nasty turn in the markets.
P.S. This Thursday at 4 p.m. EST, Adam will be explaining his systematic approach to the markets in a free, live event called, Why Most Investors Suck Wind (And How to Guarantee YOU Don’t!). With a 68% win-rate for his Cycle 9 Alert service, Adam’s approach to investing is well worth your time to tune in and listen to. If you’d like to maximize your gains while minimizing your risk, sign up now for Adam’s special presentation.