I’ve been reading lots of articles suggesting that the stock market is ‘overbought’ (an expression meaning that we’re in some sort of a bubble, stocks are overvalued and risk is high that they’ll plummet) but then I’ve been reading the same thing over and over for a few years. In fact I’ve been hearing the same thing ever since I suggested buying stocks while writing my book (A Maverick Investor’s Guidebook, Insomniac Press) back in 2010. I’ve been a portfolio manager for a very long time, and find it fascinating that investors – even professional money managers – let their judgement be unduly influenced by their opinions which are biased by experience. Experience is a funny thing. For instance, the wife of a good friend of mine went to the trouble of working towards getting her motorcycle license. Although she passed the test with little difficulty, she hopped on her husband’s bike to go for a ride, lost control and dropped the bike. She never tried riding a bike ever again because of one bad experience.
Consider this quote from a smart friend of mine:
‘How much has your equity portfolio given on a yearly basis from January 1 , 2007 to today ( 6 years in 3 weeks. By bet is around 2%. You are doing some wishful thinking Mal. The growth game is over.”
Why did she pick that particular date? It’s probably not an accident. Timing is everything when it comes to volatile assets and the stock market is nothing if not volatile. Randomly chat with folks (like I do) and you’ll find some just can’t believe the stock market has made anyone any money…..EVER! Talk to someone else and they might tell you they’ve been very happy with their experience. Have a look at this graph:
If you’d invested your money (starting point) five or six years ago, you’d understandably be disappointed – see the red line. If you’d decided to include stocks in your financial plan ten years ago (green line), it’s likely you’re satisfied and have no difficulty weathering a temporary storm. An investor who read my book and put money to work coming out of the financial crisis (orange) will not only be ecstatic, he/she will no doubt have an exaggerated sense of their own investment ‘skills.’
In my estimation (which could be dead wrong) economic growth has only just begun to accelerate and I am not the only soul that believes it. John Aitkens is an old friend and an excellent investment strategist at TD Securities. These are his words (and his chart):
“We continue to believe that global policy stimulus is driving a re-acceleration of US and global growth that will become increasing evident over the next few months. We therefore continue to recommend an overweight in stocks and an underweight in bonds. We recommend overweighting non-price sensitive cyclical areas (technology, industrials, consumer discretionary), while underweighting defensive sectors (utilities, telecom, consumer staples). We have financials, resources and health care at market weight.”
Over many years John and I have been in agreement about the direction of markets…..i.e. he’s usually right.