Good Morning Gentlemen, I had to call in "sick" to my own office today so I am spending the day reviewing my financials.
I still don't understand why the market is up 18.8~ YTD. The economy is slowly recovering, Bernake is leaving(though Yellen seems to be quite competent), debt is high, Bipartisanship is still ongoing yet somehow the market keeps going up. It seems that 16,000 is the magical number. The DOW gets close to it and then drops. My last link was "blown off" but I still have grave concerns about the market doing so well without significant positive economic markers. What do you guys think?
P.S. I am gauging what you guys are thinking just to get an idea. I am a Doctor not a investment guru. I do have a financial planner, my F-I-L is a NYL agent but I like to invest on my own too. I just don't wanna get caught in another downward spiral.
Ritesh - who wishes he was working today since that is my best financial plan ;-)
Being humble is always a good thing but don't discount yourself too much; being smart while honest about your own knowledge/skills is more important than being a 'guru' IMO.
Remember what the stock market is fundamentally. It's not about the fed, the president, or what congress is yelling about. It's not about europe, it's not about the U.S. dollar, it's not about psychology - it's about earnings of the companies listed on whatever index you are referencing, in this case the DJIA. Is XOM, AAPL, GE, etc. making money or losing money? Record earnings or terrible earnings?
The caveat to that is the
price people are willing to pay for those earnings - this is where the P/E ratio comes into to play. The good thing is that over the long term, as long as a company continues to make money, eventually you'll be rewarded as a stock holder. The timing* of when you make the investment, however, has a massive affect on your returns; i.e. a little up or a double, or a little down or a 50% loss. This is why people with excellent trading skills and mediocre investment skills will probably end up making about the same as someone with excellent investment skills but mediocre trading skills. The very few who understand both are only limited in the amount of money they can accumulate only by the risk they are willing to take. And trust me, going to sleep at night with substantial risk (note this not necessarily reckless or illogical risk), no matter your level of confidence (which will never be "1"), is a heavy price to pay that most people cannot relate to.
Right now earnings are quite good though there are some bad spots. The problem is the market is, at best, "fairly" valued. The ability for P/E ratio expansion (people paying more for the same dollar in earnings) to move the market even higher is dwindling. A lot of the last 2-4k of movement in the DOW is due to P/E expansion, not earnings. That's not to say the market cannot trade flat for many years to come.
I rotate out of securities that rely on people paying more for the stock and into those that pay shareholders through cash distributions - think KMP, or arguably AAPL given its proposed share buy back and 2-3% yield (I'm long both).
Treasury yields are also having a material impact. As bond yields lower (which they have significantly despite the hoopla you hear on CNBC) stocks become a better relative value and the government's financial integrity improves. You can figure out what happens when bond yields spike.
