Best of the Week
Most Popular
1.UK General Election BBC Exit Polls Forecast Accuracy - Nadeem_Walayat
2.UK General Election 2017 Seats Final Forecast, Labour, Conservative Lib-Dem, SNP - Nadeem_Walayat
3.UK General Election 2017 Forecast: Conservative 358, Labour 212 Seats - Nadeem_Walayat
4.Theresa May to Resign, Fatal Error Was to Believe Worthless Opinion Polls! - Nadeem_Walayat
5.UK House Prices Forecast General Election 2017 Conservative Seats Result - Nadeem_Walayat
6.The Stock Market Crash of 2017 That Never Was But Could it Still Come to Pass? - Sol_Palha
7.[TRADE ALERT] Write This Gold Stock Ticker Down Now - WallStreetNation
8.UK General Election Results Map 2017 vs 2015 vs Opinion Polls - Nadeem_Walayat
9.Orphaned Poisoned Waters,Severe Chronic Water Shortage Imminent - Richard_Mills
10.How The Smart Money Is Playing The Lithium Boom - OilPrice_Com
Last 7 days
Nether Edge By Election Result: Labour Win Sheffield City Council Seat by 132 Votes - 23rd Jun 17
Grenfell Fire: 600 of 4000 Tower Blocks Ticking Time Bomb Death Traps! - 22nd Jun 17
Car Sales About To Go Over The Cliff - 22nd Jun 17
LOG 0.786 support in CRUDE OIL and COCOA - 22nd Jun 17
More Stock Market Fluctuations Along New Record Highs - 22nd Jun 17
Understanding true money, Pound Sterling must make another historic low, Euro and Gold outlook! - 22nd Jun 17
Green Party Could Control Sheffield City Council Balance of Power Local Election 2018 - 22nd Jun 17
Ratio Combo Charts : Hidden Clues to the Gold Market Puzzle - 22nd Jun 17
Steem Hard Forks & Now People Are Making Even More Money On Blockchain Steemit - 22nd Jun 17
4 Steps for Comparing Binary Options Providers - 22nd Jun 17
Nether Edge & Sharrow By-Election, Will Labour Lose Safe Council Seat, Sheffield? - 21st Jun 17
Stock Market SPX Making New Lows - 21st Jun 17
Your Future Wealth Depends on what You Decide to Keep and Invest in Now - 21st Jun 17
Either Bitcoin Will Fail OR Bitcoin Is A Government Invention Meant To Enslave... - 21st Jun 17
Strength in Gold and Silver Mining Stocks and Its Implications - 21st Jun 17
Inflation is No Longer in Stealth Mode - 21st Jun 17
CRUDE OIL UPDATE- “0.30 risk is cheap for changing implication!” - 20th Jun 17
Crude Oil Verifies Price Breakdown – Or Is It Something More? - 20th Jun 17
Trump Backs ISIS As He Pushes US Onto Brink of World War III With Russia - 20th Jun 17
Most Popular Auto Trading Tools for trading with Stock Markets - 20th Jun 17
GDXJ Gold Stocks Massacre: The Aftermath - 20th Jun 17
Why Walkers Crisps Pay Packet Promotion is RUBBISH! - 20th Jun 17
7 Signs You Should Add Gold To Your Portfolio Now - 19th Jun 17
US Bonds and Related Market Indicators - 19th Jun 17
Wireless Wars: The Billion Dollar Tech Boom No One Is Talking About - 19th Jun 17
Amey Playing Cat and Mouse Game with Sheffield Residents and Tree Campaigners - 19th Jun 17
Positive Stock Market Expectations, But Will Uptrend Continue? - 19th Jun 17
Gold Proprietary Cycle Indicator Remains Down - 19th Jun 17
Stock Market Higher Highs Still Likely - 18th Jun 17
The US Government Clamps Down on Ability of Americans To Purchase Bitcoin - 18th Jun 17
NDX/NAZ Continue downward pressure on the US Stock Market - 18th Jun 17
Return of the Gold Bear? - 18th Jun 17
Are Sheffield's High Rise Tower Blocks Safe? Grenfell Cladding Fire Disaster! - 18th Jun 17
Globalist Takeover Of The Internet Moves Into Overdrive - 17th Jun 17
Crazy Charging Stocks Bull Market Random Thoughts - 17th Jun 17
Reflation, Deflation and Gold - 17th Jun 17
Here’s The Case For An Upside Risk In The Global Economy - 17th Jun 17
Gold Bullish on Fed Interest Rate Hike - 16th Jun 17
Drones Upending Business Models and Reshaping Industry Landscapes - 16th Jun 17
Grenfell Tower Cladding Fire Disaster, 4,000 Ticking Time Bombs, Sheffield Council Flats Panic! - 16th Jun 17
Heating Oil Bottom Is In.(probably) - 16th Jun 17
Here’s the Investing Reason Active Funds Can’t Beat Passive Funds—and It Worries Me a Lot - 16th Jun 17
Is There Gold “Hype” and is Gold an Emotional Trade? - 16th Jun 17
The War On Cash Is Now Becoming The War On Cryptocurrency - 15th Jun 17
The US Dollar Bull Case - 15th Jun 17
The Pros and Cons of Bitcoin and Blockchain - 15th Jun 17
The Retail Sector Downfall We Saw Coming - 15th Jun 17
Charts That Explain Why The US Rule Oil Prices Not OPEC - 15th Jun 17
How to Find the Best Auto Loan - 15th Jun 17
Ultra-low Stock Market Volatility #ThisTimeIsDifferent - 14th Jun 17
DOLLAR has recently damaged GOLD and SILVER- viewed in MRI 3D charts - 14th Jun 17
US Dollar Acceleration Phase is Dead Ahead! - 14th Jun 17
Hit or Pass? An Overview of 2017’s Best Ranked Stocks - 14th Jun 17
Rise Gold to Recommence Work at Idaho Maryland Mine After 60 Years - 14th Jun 17
Stock Market Tech Shakeout! - 14th Jun 17
The #1 Gold Stock of 2017 - 14th Jun 17

Market Oracle FREE Newsletter

The MRI 3D Report

It’s Time to Leave the Stock Market Party

Stock-Markets / Stock Market 2017 Mar 06, 2017 - 03:03 PM GMT

By: John_Mauldin

Stock-Markets

BY JARED DILLIAN : I’m a sentiment jockey. It’s good to get a feel for the room. That applies to all kinds of situations. When sentiment gets a little one-sided, I pay attention.

My good friend Michael Martin, author of The Inner Voice of Trading, once told me his surefire recipe for staying out of trouble in college.

He would leave a party the first time a beer bottle was thrown against the wall. He would be halfway down the street by the time the cops showed up, lights flashing.


Now, if you are a subscriber of my free investment newsletter, The 10th Man, you’ve probably noticed that I am not one of these harebrained idiots trying to short the market on every uptick. I haven’t really been cheerleading it either. I simply acknowledge that the trend is higher.

Not that I have anything against CNBC. Or Jay Z. CNBC has been dumb and right before. And Jay Z could be a genius for all I know. But usually when musicians and celebrities start getting involved in markets, all hell breaks loose. Like the time when will.i.am was named Chief Creative Officer of 3D Systems.

Yup, you guessed it.

For a sentiment jockey like me, this is gold. Some people might take that to mean to run out and short a bunch of stocks, or buy a bunch of S&P puts, or short Emini futures, or something drastic.

No, no, no.

All I’m saying is that the first beer bottle has been thrown against the wall. It is probably time to consider leaving the party. Which probably means the market has at least another 10% upside.

So what could make the market go down?

Beats the hell out of me.

Sentiment doesn’t tell you why the stock market will turn. What it tells you is when it's close to turning.

Now, what does “close” mean?

Timing the Market

A general rule of thumb is that investment booms go on much longer than you think they do. I thought sentiment in Canada was frothy three years ago. Since then, people have gone stark raving mad.

People thought tech stocks were overvalued in 1996. That was a painful four years. And by the way, if you “left the party” in 1996, missing the bear market was small consolation. You still underperformed.

One of the realities of investing is that it’s hard to be uninvested or underinvested. The latest fad is to be max invested all the time, but that’s a philosophical issue we won’t discuss here. We’re filthy market-timers, remember.

Market-timing gets a bad name. It sort of implies that you’re constantly trading, but the reality is, if you can catch one or two big returns in your investing lifetime, it makes a world of difference.

Stocks were generationally overpriced in 2000 and generationally underpriced in 2009. If you tweaked your allocation to equities even just slightly in either case, cutting exposure in 2000 or increasing it in 2009, you’re a hero. You didn’t even have to get it exactly right. Anything within a year is good.

But it is the nature of human beings to be excited by higher prices and turned off by lower prices.

I do have one very good friend from a previous life, one of the most successful retail investors I have ever known. He is wired the opposite way—he gets excited by lower prices and turned off by higher prices. He saw GE at 6 bucks in 2009 and shoved all-in.

Some Actionable Advice

Whatever big decisions you make with your portfolio, it is usually a good idea to make them gradually and average into positions over time.

Let’s say you have a 70% allocation to stocks. At this point, it might be wise to go to a 60% allocation in stocks. If the market continues higher, take the allocation down a little further.

People tend to do things all at once. “I’m out!” they say, yanking their money out of the market with the push of a button. Then they watch helplessly as Dow 20,000 turns into Dow 30,000. If you are going to make a mistake, it is best to keep it small.

The other advantage to doing things gradually is that you get feedback over time. If you cut your allocation by 10%, and the market drops suddenly, and volatility spikes, and there is a whiff of crisis, chances are you were right, and you should accelerate your selling program.

Here’s the thing, though: I’m not even all that sure this is one of those moments where stocks are generationally overpriced.

I don’t think this is going to be one of those awful 1932/1974/2002/2009 bear markets, absent any exogenous events. Let’s say the market drops 20%—which, granted, is a big move, and it would cause panic. It’s probably not worth trying to trade around it. Just keep your powder dry and buy on the way down.

These are the things you think about as an individual investor. And at the end of the day, I am an individual investor.

I have a better understanding of different asset classes and correlation and such, but ultimately, I’m just trying to save for my retirement… just like you.

You could sit around and think about these things, and be a portfolio manager, and struggle with these issues, or you could just naively put it in an index fund and not worry about it.

Unless 2009 happened all over again. Then you would worry about it.

Former Lehman Brothers Trader Reveals a Big Investment Opportunity in His Exclusive Special Report, The Return of Inflation

Don’t miss out on this opportunity to cash in. Jared Dillian, the former head of Lehman Brothers’ ETF trading desk, reveals how to make money from the falling bond market in his exclusive special report, The Return of Inflation: How to Play the Bond Bear Market. Download the special report now.

John Mauldin Archive

© 2005-2017 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

Catching a Falling Financial Knife