Day 134: Never Short A Dull Market


The Mother's Little Helper portfolio was up +0.33% today for a gain of +$2,302.04. Overall gain to date: +$110,097.44 (+18.86%). According to CNN Money the S&P 500 is up +7.06% Year To Date (http://money.cnn.com/data/markets/sandp/).

I hope my readers don’t mind that my posts are sporadic, I feel that it’s in keeping with the purpose of this portfolio and a subtle reminder that we don’t need to watch our investments every day. Last Thursday I took a trip with my girlfriend to attend The Quail Motorcycle Gathering in Carmel Valley, CA. I had two bikes entered in the show, met a lot of really great people, enjoyed some amazing food, had some-more’s by the fire pit every night and avoided talking about the market as much as I could. BTW what's with the salads in Carmel Valley? They were like artwork everywhere we went! The Diet Plate at The Running Iron was a hard choice, I added the option of a Rib Eye Steak.

Today I’m looking at the portfolio and seeing that we’re still well ahead of the S&P 500 and many hedge funds as well. The Barclay Hedge Fund Index is a measure of the average return of all hedge funds (excepting Funds of Funds) in the Barclay database and shows the average fund YTD is at +3.68%. My prediction about the French election was wrong in terms of who won. Instead of a sell-off on a Le Pen win we got a non-reaction to the win by Marcon; the market had already priced in his win.

I was asked at the motorcycle show if I thought the stock market was too expensive.

Clay: “What do you mean by expensive”?

New Friend: “Is this a good time to get in or are stocks just running up on euphoria”?

Let’s separate a few issues here. Yes, the stock market is expensive by historical standards if we measure ‘expensive or cheap’ by forward earnings estimates. The 20 year historical average is about 16 and currently the S&P 500 is at 17.5. No, the markets are not running on euphoria. I lived through the DOT COM bubble and burst and a couple other euphoric bubbles; this market is being driven by earning, growth and rising rates that are trying to keep a lid on the growth. Can an investor still find good buys in individual stocks? Yes. Is it still a good time to buy index funds? Yes. Overall, global events are not too troubling to markets so geopolitical risk seems low. North Korea’s saber rattling isn’t impacting how many iPhones are sold in Europe. China’s slowdown in oil consumption isn’t impacting the amount of drilling in the U.S. And the French election didn’t affect how many hamburgers were sold at McDonald’s. Tax cuts appear to be on the way. Hiring has remained strong and the US jobs reports continue to impress. Corporate earnings in the U.S and Europe have been impressive and the forward looking guidance is also positive. In 2016 everything was about the Fed and interest rates and we were still talking about the price of oil and the ‘earnings recession’. Today the Fed is barely a part of the conversation and corporate earnings are strong and improving. Markets know that interest rates will get raised, probably two more times this year and money will still be cheap to borrow. As long as that’s the case then bonds will be a lousy place to park money and stocks will continue to outperform bonds.

On Monday the VIX (Volatility Index) also known as the fear gauge fell to 9.77, the lowest level since 1993, the VIX was initiated in 1992. According to a recent ICI report there is nearly $2.7 Trillion sitting in money market accounts. With strong earnings, rising rates, low geopolitical risk, investor fear near an all-time low and lots of cash on the sidelines the market can definitely go higher and there are many companies out there with plenty of upside. Why is the market so sleepy, simple, we all got righteously burned in 2008-2009 and we're holding our cash. When or if that money gets put to work in the stock market we'll see some volatility return and the markets will go higher.

Take a day or two off, do something new, spend time with family, then decide if you have a solid foundation in the right index funds, some diversity in dividend paying DOW stocks, a few well selected growth stocks and plenty of cash on hand in case the market pulls back and offers up some companies on sale.

Stay Invested,

Clay Baker

Disclosure: I am personally invested long in these stocks that appear in the MLH portfolio and may purchase or sell share withing the next 72 hours. I am also invested in other stocks that do not appear in the MLH portfolio: BA, BRK.B, CELG, CSCO, CTXS, CVX, DOW, DVAX, FB, IBM, NTES, NVDA, OMER, PFE, PG, RDHL, SCHW, THO, TWX, VEEV, VZ, XLNX, XOM

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.

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This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice.
This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities.

© 2016 by Clay Baker all rights reserved