Remember that great Kenny Rogers song, “The Gambler” https://www.youtube.com/watch?v=Tw5LaEzEcJw My favorite line is the “You got to know when to hold them, know when to fold them, know when to walk away and know when to run.”
Over 20 billion dollars are flowing into stock mutual funds over the past few weeks!
The Stock Market is doing very well and you would think I would be happy, right?
Well, yes and no.
Yes, because we have a lot of gains and accumulated reinvested dividends from late 2008 through presently August of 2013 and as the market continues to reach new highs, those gains and dividends are also gaining. No, because it would NOT be wise to invest more money in these inflated stock prices.
However, if you truly are a long-term investor—that is a person who will be disciplined enough to not panic and hold his dividends paying stock through good times and bad for at least a minimum of 20 years—it does not matter a great deal if you buy some stock at these inflated prices.
Another reason why I am unhappy is that all our monthly and quarterly dividends are being reinvested at these lofty prices and any significant drop in the Stock Market will show large unrealized short-term losses on a person’s investment portfolios.
As strange as this may sound, when the stock markets crashed (I prefer the word corrected) in 2008 and The Dow was down by over 50% from its high of over 14,093.08 on Oct. 8, 2007 down to a low of 6,626.94 on March 6, 2009. Since then there have been over $405 billion net dollars flowing out of stock mutual funds into cash. Now, that the market has gone from 6,626.94 to a record high 16,550, the flow of billions have reversed course and is going in at the top of the market (?).
I am sorry, but what happened to the common sense logic of buying low and selling high? It is as if a person who wants to buy a pair of shoes that are selling for only $66.26 said, “No, I will wait until the price goes to $155.50 to buy them.” I am scratching my head on this one, I guess something will never change and Forrest Gump’s mama was right; “Stupid is as stupid does.”
Please do not get me wrong; I love a good strong sustain upward (Bull) stock market, that is powered by corporate and consumer driven growth, but the only reason why the market is this high and the housing market recovered this much so fast is due to the US Federal Reserve forcing interest rates down to the point where it is painful to people who had pulled ALL of their money out of the stock market, and they can’t stand to see that they were making almost zero return on their money.
Yes, there are times when the US and other Governments have to intervene because, God forbid, Corporate America will also run just as fast to a safer corner, while the everyday consumer panics. However, history has proven that when the US Government overdoes things, it leads to complete chaos; remember when Alan Greenspan raised interest rates over 10 times in 1999 and we paid the price in 2000-2002?
Yes, “You got to know when to hold them, know when to fold them, know when to walk away and know when to run.”
Please give my regards to you wonderful loved ones and have a fabulous weekend.