Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Don't Make the Investing Mistake of Lifetime

Stock-Markets / Investing 2013 Jan 18, 2013 - 12:04 PM GMT

By: Money_Morning

Stock-Markets

Shah Gilani writes: I wrote an article for Money Morning on Tuesday entitled: "The Great Rotation Makes Stocks a Generational Buy."

The story drew several comments from readers - some in agreement, others... not so much.

For instance, reader Mike W. wrote in quoting the article:


"Last week $22 billion flowed into mutual funds and ETFs. That's the second-largest weekly flow on record. Of that... $8.9 billion flowed into equity mutual funds... the most since March 2000 and the fourth-largest weekly inflow on record."

He continued:

"What happened after the [largest] inflow of $23 billion in late 2007? The stock market fell off a cliff. What happened after March of 2000? The stock market fell off a cliff."

As you might have guessed, there's much more to this story...

The Problem with "falling off the cliff"
The problem is, Mike's not comparing apples to apples. What's more, I'm not advocating buying blindly.

Instead, I point out that buying these days should include global diversification, asset class diversification, and buying downside protection. Downside protection alone comes in umpteen different flavors, all thanks to ETFs.

The problem with the "falling-off-the-cliff" argument is that it compares three different time periods and points to what seems to bea common factor. That is to say, the markets did collapse after each of the historical inflows he mentions.

But Mike is right in a very real sense. Too often the public jumps into great bull markets at exactly the wrong time. Contrarians actually use their arrival at the party en masse as a signal to get out of the house because the music's about to stop.

Back in 2000, the hot money was chasing Internet stocks in a feeding frenzy; there was a new billionaire every minute. Stocks without earnings were doubling - doubling - every month or so in a textbook case of irrational exuberance. There's a better word for it: craziness.

Then came the blow-off from the reality check - along with the realization that hot-shot star analysts were aiding and abetting one of the biggest pump and dump schemes in history. This sent the latecomers off the cliff and upset the apple cart for just about everyone.

The markets came roaring back in a few years. In 2007 the real estate bubble was about to burst.

Again, the latecomers, those perennial Tail-End Charlies, were the tragic actors. Most of them were making money - on paper - and borrowing against their (unrealized) real estate gains. They chased the markets and, wouldn't you know it, stocks were the end destination. They all piled in, just ahead of the inevitable cliff. We all remember what happened next.

It's important to note that the market crash was the result of the real estate crash and all that leverage that had built up everywhere. There were margin calls all over the place and people were selling everything to get out of the way. Everyone was headed for the exits while the hedgers and short-sellers sold like their lives depended on it.

When it was all over, what happened?...

We went over the cliff and came back around to the edge again - with one very important difference. This time around we're looking at a lot less leverage in the system and no major retail bubble to push us over.

This time, stocks have not risen as a result of bubble-making gamblers throwing money into ridiculously over-pumped companies. There is a bubble-making gambler at work here, to be sure, but that's the Fed in all of its quantitative-easing, easy-money, double-fisted, hand-pumping glory.

Corporations are not where they were in 2000 -- or 2007. They are infinitely better off now.

But there is another side, should the Fed slow down its pumping operations. Interest rates will start to rise and bond prices will start to fall.

The Great Rotation Game Plan
That's going to be one of the triggers of the Great Rotation. So, it can be argued that the Fed-pumped markets may be in danger of falling if the Fed stops pumping. But that will mean the money flows into stocks.

The picture I'm painting is this: there will be trillions of dollars coming out of low-yielding bonds. That money needs a place to go, and the destination is the stock market. It will be the beneficiary of the Great Rotation as the money flows in, looking for return, dividend yield and appreciation.

I'm not saying we won't see a correction; we're way overdue for one. We could see increasing volatility in the first two quarters of 2013.

But still, I'm looking for buying opportunities, especially on the dips. If we get a correction, a particularly big one (which I'm really hoping for), I'm diving in with everything I've got - right when it looks the worst.

Why am I hoping for a steep correction in the first half of the year? So I can buy the panic with both hands and reap the rewards from the bounce and massive push that's sure to follow the wholesale dumping of bonds at their last gasp.

If we don't get a correction, I'm not going to sit by and watch the market double and say, "I'm gonna get in on the next correction!"

No, I'll get in now and add on the way up, raising my stops the whole way. That way, I'll stop out if there is a big correction, with profits or without, and I'll keep buying at lower prices if we go there.

That, my friends, is why we're at a generational buying point. Besides, I'm always buying insurance so I can sleep at night.

Sitting out this building move is the greatest the investment mistake you'll ever make.

Editor's Note: For more about The Great Rotation, and to join the conversation with Shah, click here.

Source :http://moneymorning.com/2013/01/18/the-greatest-investing-mistake-youll-ever-make/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in