When asked what the
would do, revered financier J.P. Morgan gave a famous -- and
invariably correct -- answer:
"It will fluctuate."
Tuesday's market selloff -- the worst day for the Standard &
since 2012 began -- should serve as a reminder to investors of
Morgan's market truth. As equities rise on a broad uptrend, as they
have in 2012, it's easy to forget that they can also fall. Our
optimistic exuberance for new gains evidently outguns our ability
to remember sharp losses and long, slow or no-growth periods such
as we've seen in the past few years.
Like most individual investors, I'm positioned to benefit from
rising markets, so I don't like to see a broad selloff. On the
other hand, I'm a long-term investor who makes conviction buys on
companies with bright
, so day-to-day movements, while worth watching, aren't usually
worth worrying about. I tell readers of my
newsletter this in practically every issue.
Instead of worrying, I concentrate on thinking things through.
Here is Obermueller's Law:
The market is always trying to tell you something.
A lot of otherwise intelligent investors react to fluctuations
emotionally -- either positively with gains or negatively with
losses -- rather than objectively seeking to figure out just what
the hell is actually going on.
On a day like yesterday, then, most investors will sigh or groan
and complain that 481 out of the S&P 500's components ended the
day in the red.
That's one way to look at things.
Another perspective worth checking out is to notice something else:
19 stocks posted gains. Listing all the stocks that fell on a down
day will generate data. But a list of the stocks that rose is a
step toward garnering useful market intelligence.
Take a look at yesterday's winners:
The first thing to notice is the strong retail presence. Of the 19
companies on this list, six --
Supervalu, Staples, Family Dollar, Big Lots, Kohl's and
-- are brick-and-mortar retailers. (Include
Amazon.com (Nasdaq: AMZN)
, and retailers are nearly 40% of the list.)
Excepting Amazon.com, they were retailers with a theme: These are
all stores people go to when they want to save money.
iffany & Co. (
all had down days.
These "defensive" retailers -- places people will continue to shop
even in or perhaps to a greater degree in a down
-- were one of the sectors investors turned to when the boards
This is sometimes referred to as a
flight to quality
. The idea is that investors, worried about -- whatever -- will
seek a safer alternative to shield their assets.
The significant trend here, though, is not retail.
Specifically, it's semiconductors. When the going got tough, the
tough looked to microchips. They bought
Intel, Altera, Xilinix, KLA-Tencore, Microchip
. Expand the tech circle a little wider to include the Motorolas
and Amazon.com, and it's clear what the market is trying to tell
Tech is key.
Tech is not just shelter in the storm, either. It's got the most
potential going forward.
Don't believe me? There's not a single issue of
that doesn't touch on some form of tech innovation that in one way
or another will change our daily lives -- and potentially generate
serious returns for investors.
Look no further than the indexes: The
Nasdaq Composite Index
is trading at 23.6 times
. The five-year average valuation for the tech-laden index is 28.6.
The index overall can rise more than 20% just to reach its
historical valuation. But my guess is it won't stop there. My guess
is the Nasdaq will breeze past its historic earnings multiple and
reach close to a record.
Why? Look around you. We're in the midst of a mobility revolution.
Apple (Nasdaq: AAPL)
is the largest
in the country. New devices using new types of connectivity are
gaining a toehold in mainstream consciousness. Go anywhere and look
around at the technology people are integrating into their lives.
And then think of what's going to happen when everyone in this
country, everyone in the entire Western world and even the
developing world is totally connected.
Remember, the best way to predict what's going to happen is to look
at what's happening. Times they are a'changing -- true.
You ain't seen nothing yet.
Action to Take -->
Growth-oriented investors should consider securities like the
PowerShares QQQ Trust (Nasdaq: QQQ)
exchange-traded fund, which tracks the leading 100 Nasdaq-listed
companies. Also, be sure to check out my next issue of
, which will review the latest companies to add themselves to the
Nasdaq, and which ones are likely to deliver the richest gains
Go here to learn more
Andy Obermueller does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of INTC in one or more if its "real money" portfolios.
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