One of the biggest misconceptions that I deal with as a Minnesota investment advisor is the following belief. You have to guess the next direction of the stock market in order to be a successful long term investor.
That is not true at all. No one can guess the direction of the stock market consistently over the long term. Super computers managed be really smart people can’t even do that. If they could, they would already have all the money in the world.
The majority of stock market investment success comes from taking the time to sit back and observe what the stock market is doing. At any point in time, observe what the stock market is trying to tell you.
The stock market always has a message; you just have to take the time to figure out what that message is telling you.
You have heard the expression, “talk less and listen more.” In the case of the stock market, I would advise you to read and listen less to the non-stop stock market commentary. Instead, listen to what the stock market is telling you.
The stock market moved to all-time highs in early August. Then the stock market suddenly stopped moving higher. The reason for the halt was that the stock market could not find any new buyers at the higher price levels.
In the last few weeks, several large U.S. companies have reported lower earnings for last quarter. More importantly, these companies have lower earnings estimates going forward for both 2013 and 2014.
Stocks trading above their 50-day and 150-day moving averages have moved down. The number of stocks trading at new highs versus stocks trading at new lows has dropped dramatically.
Interest rates have gone up to levels not seen in almost two years. Suddenly, bond prices look like a good alternative to high stock prices.
Historically, September and October are the two worst-performing stock market months. The fall of the year is when large stock market investors take stock in what has gone on year-to-date. They also put a plan in place if the stock market goes down.
The stock market is sending a message now. Sit back and understand how that message will affect your stock and bond market investments.
The answer to higher or lower stock prices is right in front of you. Listen to the message.
Ric Lager
Lager & Company, Inc.
