Where Money Management Greats Are Investing In 2017

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What an incredible time to be a stock market investor. Prices have been surging higher over the past few months, with the popular benchmark Dow Jones Industrial Average breaking the 20,000 barrier for the first time in its history.

Driven by the new Presidential administration's anti-regulatory, pro-infrastructure spending, and tax-slashing stance, the bullish energy is the highest I have experienced in many years of market participation.

I am excited about this rally and firmly believe that stocks will move much higher this year. It is particularly thrilling that my opinion mirrors those of many highly successful hedge fund managers.

But this opinion is not without its share of naysayers.

The Bears Awake
Whenever stocks take off on the upside, it serves as a wake-up call for the stock market bears. This time is no different.

The sharp run-up in prices has multiple pundits and prognosticators saying that a market crash is imminent. They argue that things have just been too good for too long for the positive move to continue.

" There should be a deeper concern this record run in the U.S. stock market is grossly disproportionate to all of the uncertainty and systematic risk in the global economy right now ," said Joel Kruger of LMAX Exchange in an interview with MarketWatch . He went on to say, " This rally is more analogous to a person climbing a dangerous ladder, only doing so to avoid infection from a sick person chasing from below ."

Whenever these perma-bears start to sound like they are making sense, my thoughts go directly to the famous quote by economist John Maynard Keynes: " The markets can remain irrational longer than you can remain solvent. "

Things Really Are Different This Time
But the difference with this monster bull market, like with many in the past, is that it is far from irrational.

The surge higher is in direct reaction to pending structural changes in the economy. 2017 bulls are far different from the fast-money artists of the internet bubble. Today, there is real support for surging prices, built on actual changes rather than on the dreams, hype, and crazy projections of the dot-com era.

Does this mean we will never see another pullback in prices or even substantial selling? No, absolutely not -- markets are designed not to travel in a single direction. Every bull market experiences pullbacks and even sharp price drops, but for the time being we can expect only increases.

Billionaire Hedge Fund Manager Dan Loeb Agrees
Dan Loeb is among the most respected hedge fund managers alive today. He manages Third Point LLC, an activist fund with over $17 billion in capital. Loeb launched Third Point in 1995 with just $3.4 million and had successfully grown the fund into the behemoth it is today.

He has a unique way of looking at the markets. Dan applies spiritual concepts learned as a surfer to his investment decisions. He has practiced yoga since 1995, even going to India to study under a master, as an offshoot of his spiritual beliefs.

Addressing justifiably nervous investors, Dan Loeb laid out the bullish case in his fourth-quarter investor letter .

He wrote, " In the immediate term, we believe we will see an acceleration of economic growth at home. Electing a President who is seen as pro-business (ignoring his protectionist views on global trade) has awakened animal spirits, already demonstrated by the record spikes in both business and consumer confidence since the election. This economic growth will come at the same time as inflation is starting to inflect upwards and the domestic economy is close to full employment, notwithstanding the low labor force participation rate. "

Talk about a super bullish stance on the future. Now that we know what Loeb expects for 2017, how has he positioned his portfolio?

Following in the footsteps of money management greats Carl Icahn and Stan Druckenmiller, Loeb shifted his portfolio away from structured products and into stocks as soon as Trump's victory was announced.

He spread the risk across similar-sized holdings in the healthcare, technology, industrial, and financial sectors. The most significant alteration was in the financial sector, where Loeb ramped up his holdings to nearly 12% of his portfolio from a pre-Trump level of 4.4%.

Third Point is now concentrating on banks and brokers and has also ramped up its exposure to Japan.

Risks To Consider: There is always risks when investing in the stock market. Even long-term winners like Dan Loeb can and do make strategic errors. Always use stops and position size properly no matter how confident you are in your positions.

Action To Take: Buy on the dips and expect further upside in stocks, particularly in the financial industry.

Editor's Note: Since 1926, one collection of stocks has accounted for HALF of the S&P's return -- through every market environment imaginable. If you don't have this group in your own portfolio, you could be missing out on the single best place to put your money this year and next. Learn which stocks can ...

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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