Sunday, May 20, 2018

Why Do Happy Times Always Create Foolish Investors?

Remember that great Kenny Rogers song, "The Gambler"?

My favorite line is the "You got to know when to hold them, know when to fold them, know when to walk away and know when to run."

Since 2008, hundreds of billions of dollars were yanked out of the Stock Market, however, the tide has turned. In the past few months, there are net in flows in the billions that are now flowing back into stock mutual funds.

The Stock Markets are doing very well and you would think I would be happy, right?

Well, yes and no.

Yes, because the smart investors who bought when things were really bad now have a lot of gains and accumulated reinvested dividends, from late 2008 through presently February of 2014 and as the market continues to reach new highs, those gains and dividends are also gaining. No, because it would NOT be wise to go 100% all in and invest in these inflated stock prices.

However, if you truly are a long-term investor-that is a person who will be disciplined enough to not panic and hold his dividends paying stock through good times and bad for at least a minimum of 20 years-it does not matter a great deal if you buy some stock at these inflated prices. But, as I mentioned above, I still would not go 100% all-in at these lofty prices. I would use a 10% Incremental Solution to Get Back a Maximum of 70% in the Stock Markets. Very simple strategy, that is keep putting/investing only about 10% each time of your long-term investable money in to the stock markets over the next 12 months until you have a maximum of 70% invested

Another reason why I am unhappy is that all our monthly and quarterly dividends are being reinvested at these high-end prices and any significant drop in the Stock Market will show large unrealized short-term losses on a person's investment portfolio.

As strange as this may sound, when the stock markets crashed (I prefer the word corrected) in 2008, and The Dow was down by over 50% from its high of over 14,093.08 on Oct. 8, 2007, down to a low of 6,626.94 on March 6, 2009. Since then there have been over $405 billion net dollars flowing out of stock mutual funds into cash. Now, that the market has gone from 6,626.94 to a record high 16,550, the flow of billions has reversed course and is going in at the top of the market (?).

I am sorry, but what happened to the common sense logic of buying low and selling high? It is as if a person who wants to buy a pair of shoes that are selling for only $66.26 said, "No, I will wait until the price goes to $155.50 to buy them." I am scratching my head on this one, I guess something will never change, and Forrest Gump's mama was right; "Stupid is as stupid does."

Please do not get me wrong; I love a good strong sustained upward (Bull) stock market that is powered by corporate and consumer driven growth. But, the only reason why the market is this high and the housing market recovered this much so fast is due to the US Federal Reserve forcing interest rates down.

This site is centered around topics ranging from Forex currencies, day trading, stocks, mutual funds and other forms of investing. To learn more about investing for 2018, be sure to visit: Forex Master Method Evolution Review | Specs, Indicators, DVDs