Investing
“The markets can
remain irrational longer than you can remain solvent.”
—John Maynard Keynes (supposedly)
“Be greedy when others are fearful and fearful when others are greedy.”
—Warren Buffett
“Past performance is not necessarily indicative of future results.”
— Fidelity, T. Rowe Price (TROW), J.T. Marlin Securities, et al
—John Maynard Keynes (supposedly)
“Be greedy when others are fearful and fearful when others are greedy.”
—Warren Buffett
“Past performance is not necessarily indicative of future results.”
— Fidelity, T. Rowe Price (TROW), J.T. Marlin Securities, et al
Interpolated somewhere among these maxims is the angst and
avarice of diving back into the market now, following a 200 percent total
return from the lows nearly five years ago. For better or worse, it seems as if
Mom & Pop are back, my colleague Charles
Stein reports. The handful of you keeping score at home know that the Dow
Jones industrial average just cracked 16,000—paging Brian Williams and Scott
Pelley—with stock funds taking in just under $175 billion in the first 10
months of the year, their most since the fateful year 2000.
This comes after a good half-decade period that can perhaps best be described
as the Great Evacuation from equities. And it comes as bonds, the
beneficiary of a fetish-like $1 trillion of inflows during said Evacuation,
clinch their first annual loss since 1999.
What happens if this all this fickle money comes as a deluge
back into the market? Is it all necessarily a sell signal? Jeremy Grantham,
chief investment strategist at Grantham Mayo Van Otterloo & Co., warned
clients in a letter last week of a “third in the series of serious market busts
since 1999.” BlackRock (BLK)
chief Larry Fink, who lords over $4 trillion in assets, predicted this month that stocks may fall as much as 15
percent due to political risks in China, Japan, France, and the U.S.
“I’m pretty modest,” volunteers Joshua Brown, a New
York-based financial adviser at Ritholtz Wealth Management who blogs as the Reformed Broker.
“But I predicted this.” He says investors have been down for so long that
people forget that the investing masses were buying throughout the 1980s and
’90s. “People making more than they can spend, with, say, 40 years of living
ahead of them—they are supposed to be buying stocks, not plowing $1 trillion
into bonds. This is what they’re supposed to do, and it’s not reflexively indicative
of a mania.”
Indeed, based on historical patterns, Mom & Pop’s
reunion with stocks may not be as bearish a contra-indicator as widely
believed. According to Investment Company Institute numbers going back to 1984,
annual equity mutual-fund flows turned positive in 1989, preceding market gains
in eight of the next 10 years, and in 2003, after which the Standard &
Poor’s 500-stock index rallied for more than four years.
Still, the Obama
bull run has left investors as a group with an unusually high allocation to
equities, at 57 percent, according to Vanguard, the world’s largest mutual-fund
company. Equity exposures were higher only twice in the past 20 years: during
the dot-com-bubbled late 1990s and just prior to the 2007-2009 global financial
crisis.
So you can pretty much bend the stats to the contours of
your worldview—bullish, bearish, or meh.
In the interest of full and fair disclosure, and before the
Securities and Exchange Commission comes knocking, I’m divulging what may have
just been a Joe-Kennedy-shoeshine-boy moment: Both Mom and my
mother-in-law asked me about shares of Tesla (TSLA),
which have soared 265 percent this year.
