The sky is falling.
I'm relatively new to the Q* thread, but by some standards am a veteran investor. 4 whopping years. With the market down another 100 pts., I have a few things I want to get off my chest. While everyone else seems to have had their "rant", I have not. I know that those of you ranting have been around for a while and feel entitled. If I'm not "entitled" to a rant yet, tough sh_t. :-)
I've got clients who are coming to me with exactly the fears and ambivalence I'm reading on this thread, and others. I, of course, share some of those fears. (Aside, I was about to buy a new (used) vehicle today and am rethinking it based on Gregg's posts...)
I tell them this: There are two camps of investors - those who are trying to predict where money will go next (top down) and those who invest in good companies and wait for the "money" to come to them. (Bottom up). There are solid macro-level reasons that the 15 largest-cap cos. on the SP 500 will continue to outperform those below. (recent WSJ: those 15 stocks account for all of the gain in the index this year)
My reasoning: Fidelity Magellan is a $70 billion fund. To take a $700 million position in a stock, huge obviously, is only 1% of the fund. Say the stock doubles in the next year (Q?). Meaningful impact on the fund? Zippo. If it's a mid (<$10 bill. market cap) or smaller, there's no liquidity for the manager and he's no longer "prpoerly" diversified. Solution? Stick to mega-caps. (Ken Fisher's advice is to ONLY buy the 35 largest cap stocks) The act of continuing to buy those stocks, combined with the 20 or so other colossal funds, makes'em go up. Hence MSFT trading at 70x trailing earnings and growing 20%/yr.
If I'm Joe Investor with $100k in my 401K, and my "low-risk" growth and income mutual fund has trucked along at 30% or so, am I really going to start contributing to this "high-risk" small-cap fund that's only done 18%? Hell no...
Combine that with share buybacks, funded by the piles of cash a lot of these companies are sitting on, demand increases, supply decreases, ergo presto changeo, price goes up, or holds steady. Meanwhile over half of the DAQ is down over 35%, and people remain sanguine because their conservative mutual fund, now mimicking the S&P, holds up just fine thank you very much.
Now, me, the hard-working, research-oriented, journeyman stock broker, who really is working in what he thinks are the best interests of his clients, watches great companies go nowhere, or worse, down, because they're either not sexy enough, or the macros are bad. See above.
Meanwhile, YHOO does 400%, LU doubles, MSFT cruises, etc. Clients ask me "why aren't you making me that?" Or "I'm paying you to predict this stuff." Individuals can now become market makers themselves and buy and sell based on 1/8th of a point moves. $10 trades encourage day trading and commercials echo the sentiment. "I dumped my Chevy and bought BMW...all in the same day" - aren't you a genius?!?! People call me unsoliticted and ask me if MSFT is a good idea right now. I've stopped talking them out of it. Wade Cook is seen as a prophet by his disciples as he promises 30% MONTHLY returns - using options. (The question "Gosh at 30%, with compounding interest, you'll own the world pretty soon, no?" is met with blank stares. Likewise when I point out the $800,000 LOSS his corporation declared in 1997 for trading securities.) Clients go offshore for the promised DOUBLING of their money in three months - guaranteed. I ask them how the guarantee will be enforced. "Huh?"
I know I'm way, WAY, off topic, and don't care. The Dow dropped another 70 pts as I write this. My concerns are a little different than many of yours, as I am trying to make a living helping people invest. While you may not care what the Dow does, I have to, even though I have explained dozens of times its (ir)relevance in investing.
Sound like I need a little hand-holding? Maybe so. If no one repsonds to me, no big deal. I don't find many people in my office I can talk to about this stuff. They say (in robot-like voice) "assetallocation" "buy Microsoft" "takeclientgolfing" "dontswimagainstthecurrent".
Finally, as my voice rises in volume to thunderous pitch, THANK YOU for reading, sharing your incredibly diverse knowledge, experience, insight, humor, and intellects. This thread is like drugs to me...
mmeggs
I know, in my heart, (and head) there is a smart way to invest, and a dumb way to gamble. |
