Some companies are doing great right now (Coke, Disney, Apple, Toyota, Magna International, etc) while others have disappointed investors in this recent earning season. The Greek saga is probably the best show you can see on TV right now (unless you are watching the Quebec university boycott saga!). Obama wants to kill dividends, the Fed keeps promoting a bullish feeling on Wall Street by keeping interest rates low until 2014 (will they ever have the guts to raise it one day?) and the Canadian Housing Market worries more than one economist. Fortunately, we do have the Facebook IPO coming in May, this could excite even the most bearish among us. This is definitely a great time of uncertainty!
Are You Bullish?
If you are like me, you probably look at the companies’ fundamentals and see a lot of profits, liquidity even more R&D and mergers & acquisitions on the horizon. You probably see dividend increases while keeping dividend payouts low. With bonds and CDs offering less than what you give your kids for allowance, many investors are turning towards dividend stocks and help maintain their assets. In the best of worlds, we will all realize that while Governments can’t handle their budgets better than a man in a car showroom or a woman during a Guess sale, companies have cut their expenses, become more profitable and are ready to explode. I’m not inventing this, it has been the story of the stock market for the past 100 years;
First comes growth,
Then the feeling of infinite richness,
Then the doubt,
Then the panic,
Then it tumbles,
Then companies go back to the drawing board and cut everywhere,
Then they become more effective and profitable,
Then comes growth,
Then comes exaggeration… you get the picture, right?
So, we are right now in the phase of “then they become more effective and profitable” as growth is not yet confirmed. The “great” market we had since 2009 is more due to the fact that we were recovering from a 35% drop in 2008. We didn’t gain much so far if we compare to 2007. As of May 8Th 2012 (compared to May 11, 2007), here are the performances of the major indexes:
S&P 500: -9.42%
Nasdaq: +14.55% (mind you, most of the gain has be made since Jan 2012)
Dow Jones: -2.96%
S&P TSX: -15%
So, over the past 5 years, there wasn’t much money to be made if you simply followed the indexes. This is why I think that the market will eventually explode due to solid profits and not just simply recover what was lost.
Are You Bearish?
We discussed this a while ago on the blog in the 5 reasons to be bearish. The interesting point is that all the reasons stated in that article (back in March 2011!) are still around this year (besides commodities are dropping recently on fears about Europe). The truth is that you will always find very good and solid reasons to panic and not invest in the market.
For example, imagine if the Bank of Canada was to increase its rate and make the housing market tumble. Banks would suffer losses and restrict access to credit. Then, the economy would automatically slowdown and we wouldn’t count on China’s booming economy to buy all our resources. The Canadian stock market would be in a slump for at least another year… or more!
You can also imagine that the US Government can’t even keep up with its current budget nor raise taxes. It would automatically slowdown the economy and the stock market would be affected by such bad news. We already wonder if the economy is strong enough to support internal growth at the moment…
Bullish – Bearish… Does it Really Matter?
We can debate pretty much all day on this blog to know if we should be bullish or bearish but if you are a serious investor, does it really matter?
I’m asking because I never believe in staying on the sidelines keeping my money in money markets for years hoping to jump in at the right time. Are you able to do this? How can you know when is the perfect time to jump in and out? Where did you buy your Crystal ball?
I’m not quite sure how people do it and how they can be successful with this technique. This is why I don’t really mind if we are in a bull market or a bearish one. For me, the important part is to buy solid companies that will pay me to wait with their dividends. If I’m getting paid 3-4% in dividends and the company is solid, I’ll eventually make money with the stock and rack-up the dividends in the meantime. So I invest when I can and don’t mind if the markets go up or down .
Right now, do you think it’s the time to jump in or out? Can you answer this question?