As I sent in yesterday’s “Market Musings,” something occurred to me. The first of these daily ramblings was published exactly one year before, on June 10th 2013; yesterday was our birthday! It has been a good year to write about markets. In that time the S&P 500 has risen 18.78% and the NASDAQ Composite is up 24.88%. When I wrote the first Market Musings, though, not everybody believed that was on the cards.
After a couple of weeks during which stocks lost around 4% fears were common that we were about to enter another “summer swoon” at best, possibly even a complete collapse. One of the things of which I am most proud is that that first column and many thereafter stressed that overall the stock market was headed up. A gradual economic recovery and, most importantly, loose Fed policy have ensured that that was the case.
Shortly after we started the Fed gave their first indication that their commitment to QE was not infinite. That had many fearful that a bubble had burst and the S&P tumbled over 5% in a week. Once again, I pointed out that fundamentally nothing had changed and the weakness was an opportunity to buy some cheap stock. I made the same argument at the beginning of February, following another correction.
That generally bullish stance has been proven to be correct, but there have been times when I was less enthusiastic, particularly about specific stocks and sectors. At the end of 2013, for example, I wrote this, suggesting that Twitter (TWTR) was still overvalued, despite a drop from $75 to $63. The current $35 stock price would suggest that I was right. (Incidentally last week, at around $33, I changed that call. From being wildly overvalued the stock has gone to now being undervalued.)
There have been some notable successes on the long side in individual stocks too. In early December, for example, I wrote that two biotech stocks, ARAY and CHTP, were worth dabbling in. Two months later they were up 37% and 83% respectively. Buying Micron (MU) in July of last year, wasn’t a bad idea either. MU is up 192% since that piece was published and was never down more than 2 or 3%.
Not every “Market Musings” piece has been commentary on individual stocks. I have written about bonds, currencies and commodities as well, and have sprinkled in a little trader education. In those education pieces, one of the recurring themes has been that successful traders and investors alike are aware that not every call will be great, and are prepared to own their mistakes. There have been a few of those.
Perhaps the biggest mistake was buying into the fuel cell bubble just before it burst. Plug Power (PLUG) has continued to use price increases to offer more shares and dilute existing holdings... not a good sign and the timing of that piece was awful, coming out a day before the stock fell off a cliff. I am neither proud of this, nor the suggestion that you buy Amazon (AMZN) at just below $400, but I make reference to the howlers for a reason. Whatever success you may be having, it is important to keep in mind that markets can make fools out of all of us. Stop losses or some other damage limitation technique are a must if you are to survive, let alone thrive in the markets.
A walk down memory lane has been fun on the occasion of the column’s birthday, if a little self indulgent, but the reason most people read articles such as this is for predictions. The basic thesis that I have stuck with over the last year, which says that the US stock market is inevitably going higher in a low interest rate world awash with cash, still applies. I see stocks in general continuing higher for the next couple of years. More immediately, though, I am getting a little nervous.
We aren’t in anything like bubble territory, but it is becoming increasingly hard to find stocks that represent real value. Most sectors have caught up to the market and virtually nothing looks cheap. That doesn’t mean that we are inevitably headed lower, but it does suggest that the next few months will be a struggle. I have been bullish on financials for a while, but if I had to pick a sector to lead us downward sometime soon, that would be it. The big banks have not yet recovered fully, and whether that is down to excessive regulation or an unerring ability to shoot themselves in the foot, it believe it will limit their growth over the next few months at least. I stress, though, that overall nothing has changed. The stock market is still looking good. Long term investors will be fine, but if you have cash to deploy, some caution may be warranted over the summer.
Lastly, at the risk of sounding like a twittering recipient of a minor entertainment award, I would like to thank a couple of people for the first year; first and foremost, you the readers. I guess I could have done it without you, but it would have been a bit pointless. Thanks are also due to the editorial staff at NASDAQ.com for their belief in the idea and the freedom they allow me to write about what I like, when I like. I know that I have learnt a lot this last year and I hope you have too. Above all, though, I hope you have made some money off of ideas discussed here. That is, after all, the point of all this.