Saturday, March 28, 2020
League of Power

The League of power

"Freedom by Friday"

The Party Isn’t Over Yet. Why Stocks Could Continue To Rise

Whatever happened to the old saying, “Sell in May and Go Away.” It used to warn investors away from investing in the months May through October, a historically underperforming time for stock holdings.

But this summer has been anything but underperforming! We’ve reached the highest of highs in just the last month. The Down Jones has zoomed past its 2009 lows. In fact the S&P 500 is up more than 150% since hitting its rock bottom in 2009. So much for summer’s volatility!

When you hear news like this it’s hard not to think that you’ve missed the boat. That if only you had known that the stock market was going to tear it up this summer you would have poured more of your money into equities. In fact that’s what all the Wall Street experts are saying, the rally is nearly over and you’re too late to the easy money party. After all, no one wants to get caught at the top of a market before a crash.

We’ve been taught since grade school that the proper way to invest and make money is to buy low and sell high. You don’t buy right after a big run up in prices, right? That isn’t the way it’s done.

But is it possible to also buy high and sell higher?  Just because markets set new highs doesn’t mean opportunities have disappeared.  In fact, it often signals the exact opposite.

Since the dawn of the current form of our stock market in 1957, the market has hit a record high and then gone even higher no less than eight times. I should note that these record high’s I’m referring to are peaks that were reached after some time (a year or more) had passed from the first, initial peak.

This is where ignoring financial “experts” would have made you a ton of money. In each of these instances financial experts proclaimed that the easy money had been made and advised clients to find other investment vehicles. They warned that buying now would go against the buy low, sell high investment strategy.

What they should have told people is that it’s possible to buy high and sell even higher! Because in several of those eight instances the gains were remarkable, returning more than 100 and 200 percent for its investors.

For example investors who were not scared away after the crash of 1987 would have seen stocks surpass that years high just a year and half later in mid-1989. Savvy investors who went against the grain and bought in at that time would have nearly quadrupled their money in ten years’ time!

Perhaps someone should tell Wall Street that buying high and selling even higher isn’t too bad of an investing strategy!

If you turn on the Bloomberg TV or any of the other Wall Street news stations you’re going to hear a lot about companies missing earning marks. They use this information to convince us that things are still bad and things aren’t going well on Wall Street. Shame on them!

Just because a company misses its earnings mark doesn’t mean it’s still not making money and becoming more and more profitable!  What these so called financial experts fail to consider is fundamental measures of valuation. If a company is reporting uptrends in growth and earning that’s a great sign the stock could go up!

Valuation is just one thing to consider when deciding whether or not to invest. There are other factors that signal that this is a bull market you can profit from. Less than two weeks ago the government announced that the number of Americans applying for unemployment dropped to the lowest level since October 2007.

It’s also a good sign that inflation has remained low, at least for the time being. Prices for goods have not risen faster than income. Despite the continued quantitative easing by the government, which has pumped millions and millions of dollars into the economy, prices have stayed about the same.

Both of these things are good economic signs. It shows, albeit slow, improvement in the economy which should eventually lead to higher spending and more sales for companies. Both of which should result in higher valuations for their stocks.

I understand that there are some people who are still on the fence about the market’s ability to continue its upward trend. For those of you who remain unconvinced, I offer you this piece of advice; go back to basic investing strategies to find a winner in this market. You see even in over bought markets (which is inevitably how you must view this market) there are sectors that don’t experience a great run up in price. Look to those industries for investment purposes. A quick query should reveal to you who the laggards are.

The most important thing to remember is that there is still room to grow in this market, despite last month’s record setting market peak. If history has shown us anything it’s that it’s still possible to make crazy amounts of money, even after all the low hanging fruit have been picked off. Don’t let Wall Street “experts” scare you away from third and fourth quarter gains. And tell your friends it is possible to buy high and sell even higher—especially if history finds a way to repeat itself once again.

Good luck!

Mark Patricks

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