“They’re Back”, And Driving the Capital Markets Higher

“They’re Back” For those of you who remember the 1982 Movie Poltergeist!

They're Back!

Over the past several years money flow from investors has been tilted strongly towards Bonds and Money Markets. In most studies we reviewed there were net sales of equities and purchases of bonds.  While there have been only a few recent reports as of this time, we feel strongly reports are on their way that will show money flow is tilting towards equities again.

We certainly hope those investors who are buying now did not sell lower, as selling low, and buying higher is not a good policy for long-term profits.

What makes us think this is happening?

  1. In many cases when public companies disappoint, they are punished briefly and then invited back to the party (a lifting tide, raises all boats)
  2. The capital markets are drifting higher (up small amounts day after day), rather than cycling i.e. Two steps forward, one step back
  3. Investor sentiment is raging, according to AAII (American Association of Individual Investors) as  of 2-16-11 over 46% of investors surveyed are bullish, the long-term average is 39%

So what actions should be taken?

  1. Confirm and re-affirm your asset allocation (Stock/Bond mix), it most likely has changed, generally speaking, now is not the time to be more aggressive
  2. Be cautious, the ride is fun, and may continue for a while, but do not let your guard down or take unnecessary risks, capital markets can turn from friend to foe rather quickly this day and age
  3. Keep adequate emergency reserves, 3-6 months living expenses are a good rule of thumb

Bill Gates, in one of his early autobiographies said  “Most businesses make their worst mistakes in their most profitable years….”, using this saying as individual investor’s may be useful as well. 

Have a Great Day!

JK

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