Is buy and hold, as an investing strategy, dead?

Study the chart below.  Is buy and hold, as an investing strategy, dead? 
Everytime the stock market crashed, many investors shouted buy and hold is dead.
Yet, the truth is, it is exactly at this time when the market crashes, that buy and hold is alive and most profitable.




NEW YORK (CNNMoney)
The stock market bulls have had the upper hand on the bears for nearly five years, and they may be just getting started.

Sunday marks the fifth anniversary of the day the stock market hit its lowest point during the financial crisis and Great Recession.

The fact that the rally is about to turn five has some investors wondering if stocks can keep going much higher.

But previous bull markets, which are broadly defined as a period where the S&P 500 gains 20% or more without a decline of 20% in between, have gone on longer than the current one.

As of this week, this bull market ranks as the sixth longest since 1928 -- just behind the bull market from 1982 to 1987, according to Bespoke Investment Group.

If the S&P 500 hits a new high any time after March 22, this bull market would become the fifth longest. Assuming it continues to rally through Memorial Day, the current run would be longer than the bull market from 2002 to 2007, when the housing bubble inflated.

But this bull market has a long way to go before it becomes the longest -- that honor goes to the epic rally that began shortly after Black Monday in late 1987 and lasted until the tech crash of 2000.

This bull market also isn't the best in terms of stock market performance either.

As of Tuesday, the S&P 500 had gained 177% since March 2009, making it the fourth strongest bull market, according to Bespoke. The S&P 500 would have to rise another 20% before it will top the bull market gain from 1982 to 1987, when stocks surged nearly 230%. That's unlikely to happen, but it's not out of the realm of possibility.

So can the rally continue for a sixth year?

Of the 11 bull markets that have occurred since World War II, only three have made through a sixth year, according to Sam Stovall, chief equity strategist at S&P Capital.

But Stovall thinks there's a "good chance" the current bull market will defy history and make it to its sixth birthday. That's partly because stock valuations are still reasonable, he says. The S&P 500 is trading at 16 times 2014 earnings estimates. That's not cheap. But it's not overly expensive either.

Assuming the economy continues to grow and corporate earnings increase as expected this year, Stovall believes the bull market can last another year. He's not alone.

A survey of 30 market strategists by CNNMoney in January found that most are expecting the S&P 500 to end at 1,960, up about 6% for the year. While that would be a healthy gain, it's a far cry from 2013's 30% increase.

Jeffrey Kleintop, chief market strategist at LPL Financial, sees no signs the rally will end soon either. "In fact," he said, "the bull market may be getting a second wind."

Kleintop argues that stocks will continue to hit new highs as investors who have been sitting on the sidelines jump back into the market. He thinks more investors will come to realize that returns for stocks are likely to exceed safer assets such as bonds.

Looking further ahead, Kleintop says current market valuations suggest stocks can produce "mid- to high-single-digit gains" over the next ten years. That's not including dividends, which could add another 2%.

Of course, even the bulls concede that stocks could suffer some setbacks.

Kleintop says stocks will be volatile over the next ten years and there could even be another recession and big market pullback along the way. But for now, many experts think the bear is going to remain in hibernation mode for the remainder of this year.  


http://money.cnn.com/2014/03/06/investing/bull-market-five-years/index.html?iid=Lead

The Overpriced Market: It's hard to find anything worth buying

1.  Stocks in the market had enjoyed a great rise to a year high and optimism abounded.
2.  In the festive atmosphere that surrounded a recent 300 points in three weeks, I was the most depressed person.
3.  I am always more depressed by an overpriced market in which many stocks are hitting new highs every day than by a beaten-down market in a recession.
4.  Recessions, I figure, will always end sooner or later.
5.  In a beaten-down market there are bargains everywhere you look.
6.  But in an overpriced market, it's hard to find anything worth buying.
7.  The devoted stockpicker is happier when the market drops 300 points than when it rises the same amount.
8.  Many of the larger stocks had risen in price to the point that they'd strayed far above their earning lines.  This was a bad sign.
9.  Stocks that are priced higher than their earnings lines have a regular habit of moving sideways (a.k.a. taking a breather) or falling in price until they are brought back to more reasonable valuations.
10.  A glance at these charts led me to suspect that the much-ballyhooed growth stocks this year would do nothing or go sideways in the next year, even in a good market.
11.  In a bad market, they could suffer 30% declines.  
12.  I was more worried about the growth stocks.
13.  There's no quicker way to tell if a large growth stock is overvalued, undervalued, or fairly priced than by looking at  a chart book.
14.  Buy shares when the stock price is at or below the earnings line, and not when the price line diverges into the danger zone, way above the earnings line.
15. The market overall had also reached very pricey levels relative to book value, earnings and other common measures, but many of the smaller stocks had not.
16.  Annual tax selling by disheartened investors at the end of the year drives the prices of smaller issues to pathetic lows.
17.  You could make a nice living buying stocks from the low list in November and December during the tax-selling period and then holding them through January, when the prices always seem to rebound.
18.  This January effect, is especially powerful with smaller companies., which over the last 60 years have risen 6.86% in price in that one month, while stocks in general have risen only 1.6%.
19.  Don't pick a new and different company just to give yourself another quote to look up.  You'll end up with too many stocks and you won't remember why you bought any of them.
20.  Getting involved with a manageable number of companies and confining your buying and selling to these is not a bad strategy.  
21.  Once you have bought a stock, presumably you have learned something about the industry and the company's place within it, how it behaves in recessions, what factors affect the earnings, etc.
22.  Inevitably, some gloomy scenario will cause a general retreat in the stock market, your old favourites will once again become bargains, and you can add to your investment.
23.  The more common practice of buying, selling, and forgetting a long string of companies is not likely to succeed.  Yet many investors continue to do this.
24.  They want to put their old stocks out of their minds, because an old stock evokes a painful memory.
25.  If they didn't lose money on it by selling too late, then they lost money on it by selling too soon.  Either way, it's something to forget.
26.  With a stock you once owned, especially one that's gone up since you sold it, it's human nature to avoid looking at the quote on the business page, the way you might sneak around the aisle to avoid meeting an old flame in a supermarket.
27.  I know people who read the stock tables with their fingers over their eyes, to protect themselves from the emotional shock of seeing that their sold stock has doubled since they sold it.
28.  People have to train themselves to overcome this phobia.
29.  I am forced to get involved with stocks I have owned before, because otherwise there'd be nothing left to buy.
30.  Along the way, I have also learned to think of investments not as disconnected events, but as continuing sagas, which need to be rechecked from time to time for new twists and turns in the plots.
31.  Unless a company goes bankrupt, the story is never over.
32.  A stock you might have owned 10 years ago, or 2 years ago, may be worth buying again.
33.  To keep up with the old favourites, I carry a notebook, in which I record important details from the quarterly and annual reports, plus the reasons that I bought or sold each stock the last time around.
34.  On the way to the office or at home late at night, I thumb through these notebooks, as other people thumb through love letters found in the attic.


Peter Lynch
Beating the Street

Why the Market Is Irrational and What You Can Do About It

http://finance.yahoo.com/blogs/breakout/harvard-teach-investing-111707627.html

Standard bull markets typically have a shelf life of less than four years

This Bull Market Is Hard to Pin Down
By PAUL J. LIM
Published: March 24, 2012

HISTORY says that standard bull markets typically have a shelf life of less than four years. So when the bull that sprang to life in March 2009 turned 3 this month, it understandably raised some concerns.

Enlarge This Image

Chris Goodney/Bloomberg News

Depending on how you mark the calendar, Wall Street’s recent surge could be just a late charge in a bull market ready to run its course. Or it could be the start of something bigger for stock investors.

Yet some strategists on Wall Street mark the calendar differently. They contend that the bull market that began in 2009 actually ended last year, when the Standard & Poor’s 500-stock index hit a rough patch from late April to early October.

During that stretch, the S.& P. 500 lost 19.4 percent from peak to trough based on daily closing prices — just shy of the 20 percent threshold for a bear market. On Oct. 3, though, the index actually fell through that barrier for a brief moment during the trading day.

If that was indeed a bear, the thinking goes, then a new bull market must have been born on Oct. 3. And that would imply not only that stocks have more room to run, but also that sectors like technology, which are sensitive to shifts in the economic cycle, are likely to do well. Despite a slight downturn last week, they have been buoyant for months.

“From an official standpoint, in terms of what Standard & Poor’s will count this as, the bull market is entering its fourth year because the market didn’t officially decline by 20 percent based on closing values,” says Sam Stovall, chief equity strategist for S.& P. Capital IQ. “However, if someone asks, ‘What do you think will happen in terms of performance?’ I think the market will act as if we’re in the first year of a new bull.”

At the moment, it is. Historically, the first years of major rallies provide investors with the biggest boost, with the S.& P. 500 having posted gains of 38 percent, on average, in Year 1 of past bull markets since World War II. True to form, the rally that began on Oct. 3 has already pushed the index 27 percent higher in less than six months.

That surge isn’t the only evidence supporting the view that Wall Street is in a new bull market. Normally, shares of small companies — considered higher-risk but higher-returning assets than blue-chip stocks — tend to outperform the broad market at the start of a new rally. Shares of large, industry-leading companies, by contrast, usually catch fire only after bull markets mature.

Sure enough, small-company stocks have been performing even better than the S.& P. 500 over the last six months. For instance, the Nasdaq composite index, made up of younger and faster-growing companies than are found in the S.& P. 500, is already up more than 31 percent since Oct. 3, while the Russell 2000 index of small stocks has gained 36 percent.

At the same time, economically sensitive sectors like technology and consumer discretionary stocks have been outpacing the broad market since October, which is also typical of the first years of bull markets, Mr. Stovall notes.

He added that if this were the fourth year of an aging bull, defensive areas of the market — like health care, consumer staples and utilities stocks — would be leading the charge. Yet they haven’t been.

Jason Hsu, chief investment officer for the investment consulting firm Research Affiliates, says that even if investors are not convinced that this is the start of a new bull, market psychology is likely to keep pushing the markets higher for now.

“Research on short-term momentum in asset prices says that if you had a strong six months of steady asset appreciation, that tends to drive further price appreciation,” he said.

He added that many investors “did not participate in the fairly speculative, risk-asset rally that began in October.” So, given the occasional herd mentality on Wall Street, these investors could simply be waiting for an opening to jump in. As a result, Mr. Hsu says he thinks that the broad market could keep rallying in the short run, and that there could be continuing demand for riskier, economically sensitive stocks, especially on market dips, he said.

TO be sure, there are different types of bull markets — so-called cyclical bulls that tend to run alongside a single economic expansion, as well as so-called secular bull markets that may last for more than a decade, often containing shorter bull and bear cycles within them. The stock market’s epic run from 1982 to 1999, for instance, was the last big example of a secular bull.

“I don’t think we’ve begun a new secular bull,” says Mark D. Luschini, chief investment strategist at Janney Montgomery Scott. He points out that historically, secular bulls tend to start at price-to-earnings ratios in the single digits, as was the case in 1982. But based on valuations using 10-year average profits, the market’s P/E ratio is above 20.

Doug Ramsey, chief investment officer at the Leuthold Group, also says that while this may be a new bull market, it is what he calls a “noneconomic” rally.

In other words, this bull market — unlike the one that began in March 2009 — emerged after a bear market that did not coincide with an official recession.

What’s the significance of that? “Recessions are what clear the decks for a longer-lasting recovery and drive valuations down to truly low levels from which bigger gains can spring,” he said.

Mr. Ramsey’s research on noneconomic bull markets since World War II found that these rallies tend to be shorter-lived — the average one lasted just 31 months. And they tend to be more muted. While the typical noneconomic bull market returned less than 62 percent, cumulatively, the median bull market that emerged after recessions gained nearly 102 percent.

Of course, given that stocks have gained 27 percent so far in their current rally, that would still leave the market some ample room for gains.

Paul J. Lim is a senior editor at Money magazine.
http://www.nytimes.com/2012/03/25/your-money/bull-market-may-have-much-further-to-go.html?ref=your-money

Market Behaviour: Bull Runs

Sometimes you'll hear commentators say the bulls are running.  When you hear that, be very cautious.  Stocks are likely overpriced.

A bull run is the best time to sell stocks you own and take your profits, but only if you're ready to sell your stake in the company.  If you plan to hold a stock for years, don't feel obligated to sell it just because the bulls are running.

You'll be watching a lot of people just starting to get into a market.  People who are not intelligent investors tend to get caught up in the excitement of the market and think it's safe to get their feet wet.  Unfortunately, these folks buy stocks at the high and, when the bears return, sell stocks at the low when they get scared.

As a value investor, you've likely bought your stock on sale and now you're seeing some great profits.  You may or may not want to sell.  Run a quarterly analysis of the stock you hold, and be sure it still fits with your criteria for holding a stock.   You can design a strategy that works best for your based on your goals, your risk tolerance and your financial resources.

Related topics:

Market Behaviour: The Least You Need to Know
Market Behaviour: Crowd Impacts on Stock Prices

Market Behaviour: Can You Beat the Market?
Market Behaviour: Bull Runs
Market Behaviour: Bear Stalls
Market Behaviour: Pendulum Swings (Volatility)
Market Behaviour: Irrational Exuberance
Market Behaviour: Unjustifiable Pessimism
Market Behaviour: Control Yourself (Patience)

Is it time to trade or invest when the market is at an all-time high?

Is it time to trade or invest when the market is at an all-time high?
By FINTAN NG

IS this the time to enter the equity markets or is this the time to get out? This is the question that is always asked when equity markets are on a roll or when markets are rallying.

For the cautious types, this is the time to sell or to wait but risk-takers and optimists feel that markets can still go higher despite the fact that much of the performance of stock markets in emerging Asia, analysts point out, is largely due to the liquidity sloshing around in the system chasing higher returns that may not necessarily be based on fundamentals.

Cooler heads will point to the current disconnect between the macroeconomic outlook and the equity markets.

Long-term and cautious investors question how long will the “party” brought on by the funds entering emerging market equities will last.

Already World Bank managing director Sri Mulyani Indrawati has warned that quantitative easing may potentially create bubbles in assets such as equities, currencies and property.

She says Asian governments may need to turn to capital controls although these curbs should be targeted, temporary and tailored to address specific problems.

Morgan Stanley Research analyst Gerard Minack says in a Nov 5 report that markets are disconnecting from the macroeconomic fundamentals and the US Federal Reserve’s RM600bil quantitative easing programme may not be enough to significantly reduce recession risk, which is concentrated in the next couple of quarters.

“The other issue, however, is how long the markets can run on the quantitative easing without confirmation from macro data that things are improving,” he asks.

Minack says quantitative easing has pushed developed-world equities through the ranges seen over the past year and will not be able to defy the macro outlook for long.

“Before I turn cautious, however, I want to see that risk assets are starting to respond in a more normal fashion to incoming macro news,” he says, adding that the reaction to news have been reverse to what usually happens.

“It’ll be important when markets return to a good-news-is-good/bad-is-bad behavior,” Minack notes.

He says although the rest of the world outside the developed economies look fine with purchasing manager sentiment looking solid and with little risk of another global recession, there are hints of slowdown in Asia.

“For countries that produce monthly purchasing manager indices (PMIs), the four weakest – all below 50 – are in Asia: South Korea, Japan, Taiwan and Australia,” Minack says, although China, India and Indonesia remain strong. A reading below 50 for the PMI gauge denotes a contraction.

Although the pace of growth has slowed in the Asian emerging markets and will continue to slow at least into the first-half of 2011, stock markets have continued to surge.

The FBM KLCI, for example, has risen nearly 20% from a year ago and is now at historical highs.

If the market always anticipates the economy, than this time around investors may have gotten it wrong as growth next year, at least by Government estimates, will be lower at 6% compared to the expected 7% for 2010.

However, stock-market movements cannot rely on the amount of liquidity alone going forward, says Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias in an email reply to StarBizweek.

“Fundamental factors will have to support the overall trend. Should there be a moderation in global economic growth following the persistent weaknesses in major economies, regional markets (including Malaysia) will experience some degree of correction,” he points out.

Nor Zahidi says Asian economies, despite seeing more intra-regional trade these days, still have to rely on the G3 (United States, European Union and Japan) economies as the final destinations of their products.

He says right now, the rising stock market hints at the trend of economic growth in the next three to six months and is reflective of investors’ confidence in efforts by the Government over the past year to enhance efficiency thruogh the Government Transformation Programme and the Economic Transformation Programme.

“These have, to some extent, given positive vibes to foreign investors who, in turn, have increased their exposure to the Malaysian market,” Nor Zahidi says.

He adds that 0ther positive attributes of the Malaysian economy include the relatively stable growth prospects in the next few years following an expected steady improvement in private investment as well as resilient private consumption.

Nor Zahidi says among the signs of improving investor sentiment was the 9.4% surge in total investment in the first-half of the year compared to same period last year.

“The bond market is accordingly benefiting from investors who prefer debt instruments in Asian economies rather than those of the developed countries. This is reflected in the foreign holdings of Malaysian Government Securities which surged to 26.8% in September,” he adds.

Meanwhile, the World Bank which recently released this year’s Malaysia Economic Monitor, expects the country to achieve growth of 4.8% next year compared to 7.4% this year.

In the developed economies, despite risks of another downturn and sovereign debt concerns, markets have also risen with the S&P 500 and the Stoxx Europe 600 Index at its highest since September 2008.

For those who say that markets, at least in this part of the world, have some way to go before tanking, the arguments are that fundamentals such as positive demographics, youthful populations, urbanisation and rising middle classes will continue to drive domestic demand.

This is the view of HwangDBS Investment Management Bhd chief investment officer David Ng, who says conditions are ripe for the local bourse to experience a bullrun similar to what happened in the nineties.

Furthermore, these optimists argue that opportunities abound in the emerging markets of Asia, where governments have embarked on large infrastructure projects to boost their economies and ensure long-term growth.

They counter that as the outlook is still gloomy and with low household consumption in the developed economies, where else better to place their money than in the emerging economies?

Their views are backed by the weak US dollar, brought about by low interest rates and now facing more headwinds from the Fed’s programme to purchase US Treasury bills over an 8-month period.

The jobs outlook seems to be in favour of these group of investors too as unemployment in the United States stands at 9.6% while in the 16-member European Union, it now stands at 10.1%.

The data further supports these optimists, who point to the fact that deep public-sector spending cuts in the European Union over the next few years may crimp demand.

fr:biz.thestar.com.my/news/story.asp?file=/2010/11/13/business/7397848&sec=business

The FBM KLCI has risen more than 20% since the beginning of the year.

Year-to-date, several Asian markets including Indonesia and the Philippines have broken passed their record levels while the FBM KLCI has risen more than 20% since the beginning of the year.

http://biz.thestar.com.my/news/story.asp?file=/2010/11/10/business/7395324&sec=business

Tips for investors in current market conditions

27 Sep, 2010, 10.29AM IST,
Shubha Ganesh,ET Bureau

Tips for investors in current market conditions

The stock touched the magical figures of 6,000 on the Nifty and 20,000 on the last week. The mood this time around was one of caution with individual busy reducing their stock portfolios. The euphoria was missing due to the fear that the markets will come crashing down again.


The last time they were at 20,000 - sometime in December 2007 - individual investors we desperate to get in. Mutual funds were drawing net positive inflows of around Rs 3,000-5,000 crores from individual investors. Today, at 20,000, there are net outflows everyday and the domestic financial institutions have net sell figures of Rs 3,000-5,000 crores on the negative side, indicating heavy withdrawals.


Upward trajectory to continue


However, such caution and skepticism are healthy signs in a bull market. The Sensex is valued at just 19 times the estimated earnings, compared with a high of about 24 times when the measure reached its record in January 2008. Even though the valuations are not cheap they are not too stretched either. This has led to a reduction in margin of safety while purchasing for investments.


In this bull run, sectors such as banking, FMCG and auto that have led this market to 20,000 are trading at all-time highs. These sectors form a very significant part of the index basket and as long as they continue to perform there is very little threat of a very sharp decline in the stock markets.


New normal


According to analysts, liquidity flows to India will continues as a part of 'new normal'. In the new normal, a sharply-polarised world with deflation or near deflation in the western world and a strong growth, albeit inflationary, in emerging markets exists, they say, where it becomes necessary to invest in the emerging markets to hedge against deflation.


This is also called deflation trade. There is some consensus among market participants that a fundamental rebalancing of the global economy is taking place from developed to emerging markets. With the US Fed acknowledging the slowing of growth in the US, deflation hedging could become more prevalent. The second round of quantitative easing could also increase the liquidity surge to India.


Fundamental analysis works

One important takeaway from this year's market is that it has rewarded handsomely all companies that have performed well and has duly punished those that have slacked in earnings growth and performance. The market has rewarded good performance, and more importantly, those who have respected their equity. Never have markets been so focused on performance metrics and paid such a good price for performance. It was a dream year for analysts and stock-pickers to demonstrate their alphagenerating capabilities.


Investment strategy


Investors of today have to handle their stock investments with two home truths. One that liquidity is here to stay. When liquidity becomes a factor in investment decisions it implies that high quality companies' stocks may not be available cheap anymore.

http://economictimes.indiatimes.com/features/financial-times/Tips-for-investors-in-current-market-conditions/articleshow/6626083.cms

Bull Market

The Bull Run may continue for quite some time but has become more vulnerable to a correction.

Time and time again, some investors have been forced to sell on the cheap when they read reports that there would be tightening in lending, plans to withdraw stimulus measures as well as valuations being overstretched.

Time and time again, some of them sell during a correction only to be caught flat-footed when a rebound occurs almost immediately.  For example, they bought into a stock at $1, rode the bull market to $1.20 and sold at $1.10 when there was a correction.  The share price immediately shot up to $1.15 before they even knew what happened and missed the next wave to $1.30.  While some of them would have given up on this stock, there are others who jump back in at $1.30 only to sell it at $1.20 during the next correction.

They are scared, so they sell.  This is human nature and there is nothing we can do about it unless we can stand firm and not sell if we are able to identify that we are in the midst of a Bull Run, so selling out for a small profit is never an option.

Yes, the Bull Run is still very much alive but has stalled after a spectacular rally from March.

Much of the easy money has been made and the investors are now treading in treacherous territory where the chances of a correction are high, especially when most people are sure that growth in 2010 will be sluggish.

Even US Federal Reserve Chairman Ben Bernanke has admitted that 2010 will not be a wonderful year.  This has made investors sit up and rethink their strategy with some choosing to take profit or continue staying on the sideline until the clouds clear.

With several uncertainties still looming, it is no wonder that investors refuse to chase the rally preferring to sell every time the rally reaches a fresh recent high.  However, they have to remember that they are still in a Bull Run that may continue for quite some time but has become more vulnerable to a correction - in particular a correction that has to be as deep as 10% - when economic fundamentals in the first quarter of 2010 cannot support the rally.

Share Investment
Issue 372
14/12/09 - 27/12/09
www.sharesinv.com

Read:

BELIEVING A BULL MARKET

and also:

THRIVING IN EVERY MARKET
Value Investing Made Easy (Janet Lowe):

1. THRIVING IN EVERY MARKET
2. MR. MARKET
3. SUITABLE SECURITIES AT SUITABLE PRICES
4. PAYING RESPECT TO THE MARKET
5. TIMING VERSUS PRICING
6. BELIEVING A BULL MARKET
7. THE PAUSE AT THE TOP OF THE ROLLER COASTER
8. MAKING FRIENDS WITH A BEAR
9. BARGAINS AT THE BOTTOM
10. SIGNS AT THE BOTTOM
11. BUYING TIME
12. IF YOU ABSOLUTELY MUST PLAY THE HORSES

How much longer will the rally last? All good things have to come to an end.

How much longer will the rally last?
At the end of each month, BBC World News business presenter Jamie Robertson takes a look at the world's major stock markets. This month he considers what will happen when the global rally comes to a halt.


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The price of copper has almost doubled in the past year
A world where everything is going up in price and inflation is close to zero should be a happy and contented place.

It is not quite turning out that way.

Investors cannot put the idea out of their minds that all good things have to come to an end.

It is just no one yet can figure out how - or how messy an end it is going to be.

Huge gains

First, the good news.

Had you invested in a spread of Dow stocks a year ago you would have seen a 24% gain - despite the virtual wipe-out in the spring. The Nasdaq has seen a 51% gain, the FTSE 29%.

Bonds, treasuries as well as corporate bonds, have all shown healthy returns - even though they traditionally head in the opposite direction to stocks, benefiting from low growth scenarios. Copper is up almost 100%.

Early this year, metals prices started to lose touch with fundamentals

Andrew Cole, analyst
It seems everything investors have touched has turned to gold - which, I might add, is up over 70% on the year.

And that's without even mentioning some of the super-performers: the miners Fresnillo and Kazakhmys have risen - wait for it - 597% and 516% respectively.

Now these numbers have a somewhat narrow relevance in that November last year marked the low point for many commodity stocks, while the bulk of the global markets hit bottom in March.

Nevertheless, the point is we are riding a bull market goaded on by an indiscriminate, possibly blind and certainly irrational exuberance.

Commodity boom

The exuberance comes from cheap money.

As long as the liquidity remains the market will not fail, but we all know that at some point monetary policy will start to tighten and the stimulus packages will run out.

Then as fundamentals start to come back into play, which of the markets will turn out to have been an illusion?

The date of this turn-around seems to be around the middle to end of next year.

A number of economists are pointing to June or July for a raising of interest rates in the euro-zone, while the US is likely to wait until the end of the year.

However, markets are very good at pre-empting these things and they may well stumble several months before the actual moves are made.

Commodity prices are particularly sensitive to the Chinese economy that really lifted them out of their trough at the end of 2008, and the weakness of the dollar.

Investors moved money into commodities as a hedge against the dollar and a bet on recovery aided, if not led by China. But, again, it is the weight of money that has caused the rises.

So it is no accident that mining companies dominate the list of best performers on the FTSE 100 over the last year.

'Very shaky'

But Andrew Cole, metals analyst at Metal Bulletin, said: "Early this year, metals prices started to lose touch with fundamentals, which are still pretty poor.

"Outside of China, demand has still not picked up. There is a lot of risk and demand is very shaky. And there is no sign that stockpiles are coming down either.


Those who invested a year ago have had a good run

"But the truth is that investors are looking for places to put cash, and metals still look like a good bet," he added.

The trigger point for a commodity sell-off could be a strengthening of the dollar (or a corresponding weakening of the euro), especially if it happens in conjunction with a slowing of the Chinese stimulus package and a tightening of monetary policy, all of which are possible at varying points over the next 12 months.

The bond market is perhaps the most curious bull market of all, since it seems to be built on such a colossal supply of debt.

While the Dubai crisis rocked the sovereign debt markets - there was no real fear of a sovereign default as Dubai World is a state-owned company, not the state itself.

The real worries are closer to home in Greece, Ireland and Hungary.

UK concerns

Deutsche Bank believes Greece's public debt-to-GDP ratio could soon reach 135%. Meanwhile in the UK if the government doesn't get to grips with its debt in the next 12 months, the bull market in treasuries there may also come to an abrupt halt.

But, and here's the twist, if it does get to grips with it, such self-discipline could mean curtains for the equity bull market.

Howard Wheeldon, senior Strategist at BGC Partners, believes the US has a diverse and dynamic enough economy to continue its recovery.

But he paints a gloomy picture for the UK: "What will happen then to equities when they start slashing jobs in the public sector, when they start putting up taxes, ending the subsidies to things like car buying, and start doing all the things they have to do to bring the debt under control?

"Many of the equities in the UK have a cushion in that they have a great deal of exposure to the international economy, but the effect on the UK economy of all that austerity is going to be profound."

http://news.bbc.co.uk/2/hi/business/8393574.stm

BELIEVING A BULL MARKET

BELIEVING A BULL MARKET


When markets are rapidly rising, value investing invariably falls out of favor with the investing public. In an upward racing market, value stocks appear dull and stodgy as the more speculative issues rush toward new market highs. But come the correction, it all looks different. Stable value stocks seem like trusted friends.

Most bull markets have well-defined characteristics. These include:

• Price levels are historically high.
  
• Price to earnings ratios are high.
  
• Dividend yields are low compared with bond yields (or compared with a stock’s particular dividend yield pattern).
  
• Margin buying becomes excessive as investors are driven to borrow to buy more of the high-priced stocks that look attractive to them.
  
• There is a swarm of new stock offerings, especially initial public offerings (IPOs) of questionable quality. This bull market is what investment bankers and stock promoters call the “window of opportunity.” Because IPOs so often occur when Wall Street is primed to pay top dollar, seasoned investors joke that IPO stands for “it’s probably overpriced.”
  

Just a reminder not to be too carried away by the rising market.

THE PAUSE AT THE TOP OF THE ROLLER COASTER

There is only one strategy that works for value investors when the market is high – patience. The investor can do one of two things, both of which require steady nerves.

· Sell all stocks in a portfolio, take profits, and wait for the market to decline. At that time, many good values will present themselves. This may sound easy, but it pains many investors to sell a stock when its price is still rising.

· Stick with those stocks in a portfolio that have long-term potential. Sell only those that are clearly overvalued, and once more wait for the market to decline. At this time, value stocks may be appreciating at slow pace compared with the frisky growth stocks, but not always.

But come the correction, be it sudden or slow, the well-chosen value stocks have a better chance of holding their price.

A nice quotation: We believe in taking advantage of temporary market downturns to position our portfolios for the long term.

Align your portfolio with what a sustained market recovery

Get smart



For those who prefer to invest rather than speculate, there are far smarter ways to proceed -- and to align your portfolio with what a sustained market recovery will probably look like. As shell-shocked investors return to equities, they'll likely do so judiciously, newly aware of the benefits of bonds, for example. And for the equity sleeves of their portfolios, a focus on cash-flow kings with tremendous track records of success -- and beaten-down share prices -- will be in order.



http://www.fool.com/investing/value/2009/05/04/this-rally-is-ridiculous.aspx?source=iedsitmrc0000001

Stock market: 'Eventually shares will have the mother of all rallies'

Stock market: 'Eventually shares will have the mother of all rallies'

The stock market has jumped by about 500 points in the past couple of weeks, but investors thinking of putting their Isa money into shares want to know one thing: is this the start of a sustained recovery or a dead cat bounce?

By Richard Evans
Last Updated: 1:06PM BST 02 Apr 2009

Stock markets have shown signs of life in the past few weeks. Since London's benchmark FTSE100 touched a six-year low earlier this month, falling below 3,500 at one stage, it has rallied strongly, closing at 3,912 on Tuesday.

America's Dow Jones index has also put in a good performance, posting one of its largest ever one-day rises following the announcement of a bail-out for banks' toxic assets.

£50,000 to be won in our Fantasy Fund Manager game

But British investors wondering whether to use this year's Isa allowance before the deadline of April 5 have reason to be cautious: the markets have staged several apparent recoveries during the economic crisis, only to fall back again.

So is it different this time – is this a long-term recovery or just a dead cat bounce? Should you forget taking out a stocks and shares Isa this year, or dip a toe in the market? We asked the experts where they thought the market was heading and which equity investments, if any, Isa buyers should consider buying.

MARK HARRIS, FUND OF FUNDS MANAGER AT NEW STAR

"The direct answer is that there is no way of knowing for sure whether the recent rallies are a blip or something more sustainable, but in my view the March lows were significant.

"In early March we saw markets deeply oversold and widespread investor pessimism. Conditions were ripe for a bounce. Interestingly, a number of markets such as Brazil and China did not make new lows – they did not fall below their levels of November 2008.

"We have seen a marked increase in the determination of the US Federal Reserve to combat the various issues plaguing the financial system. This has resulted in a 20pc-plus bounce in most equity markets, which is the extent of the rallies in 2008 to January 2009.

"Valuations are supportive at lower index levels, but we have little visibility on earnings. In fact the earnings season through April is likely to be extremely difficult and may result in the markets retracing some of this rally's gains.

"I think the lows in March may prove to be significant, but that a 'test' may occur in April. If we can make a higher low for equities in April, it will be positive for further gains. But I should reiterate that I still believe that we are in a very challenging environment, and that it will be a couple of years before we can say that this bear market is truly over.

"So, put simply, we will see the rally which is just unfolding, then a correction of about 15pc, and then a further rally to take the market up in total by about 40pc from the lows."

JUSTIN URQUHART STEWART OF SEVEN INVESTMENT MANAGEMENT

"Shares on a five-year view may be OK, although prices could be highly erratic.

"I think it's too risky putting all my money into one asset class so I've diversified my investments into a mix of commodities, property, international shares and fixed interest securities such as bonds.

"You can do this yourself in a self-select Isa but it could be expensive and time consuming. An easier way is to buy a multi-asset fund, which you can hold within an Isa.

"Multi-asset funds can be actively or passively managed. I favour the passive type because costs – which can make a big difference over 10 years – are lower. Active funds can have total expense ratios of 2pc.

"Passive funds track the performance of the various asset types using exchange traded funds (ETFs). Examples include Seven's own and products from Evercore Pan Asset.

"Among the managers to offer active funds are Jupiter, Merlin, Seven, Midas, Credit Suisse, M&G, Fidelity and Jupiter. Fidelity's Wealthbuilder has a good record while Jupiter's fund is higher risk but well managed."

MARK DAMPIER, HEAD OF RESEARCH, HARGREAVES LANSDOWN

"Come what may, do buy an Isa – use your whole allowance (£7,200, of which £3,600 can be cash).

"Unless you trust politicians – and I don't – they are going to try to get more money out of you by raising taxes. So shelter as much as possible from tax while you can.

"Some people think the Isa allowance is so small that it's not worth bothering. But the yearly sums accumulate: a couple who had used their full allowances for every year that Isas and their predecessors, Peps and Tessas, have existed could have built up £190,000 by now – and that's discounting investment growth.

"If you are nervous about the markets you can keep your money in cash, even in a stocks and shares Isa (although without the tax breaks), to drip feed into the market. This prevents you from putting it all in just before a fall.

"I suspect this rally is more of a dead cat bounce; it comes from a very low position. There seems to be a base at about 3,500. Let's be a bit careful but with the market about 50pc below its peak it has to be an interesting time to think about investing.

"I don't believe, as some do, that corporate bonds are a bubble. If you buy through a fund such as M&G Strategic, Jupiter or Investec Sterling Bond, you will get a yield of 5pc to 6pc. If equity markets do eventually improve, bonds will have risen first.

"If you do want to buy equities, I would always go for a fund manager with a long-term track record such as Neil Woodford of Invesco Perpetual. But at the other end of the spectrum I also back emerging market funds such as Aberdeen's – that's where real long-term growth will be found, although prices will be volatile.

"With inflation of over 3pc on the CPI you would normally have interest rates at 5pc, not 0.5pc. So given the risk of inflation taking off I'd consider gold, via a fund such as BlackRock Gold & General.

"This rally is still more hope than anything else, the kind that has a habit of disappointing. I wouldn't push a load of money in; I'd wait for bad days and drip-feed it in then. The markets are not about to race away but one of these days they will, so don't wait for ever.

"Eventually, there will be the mother of all rallies."

ANDREW WILSON, HEAD OF INVESTMENTS AT TOWRY LAW

"All investors should aim to hold a diversified investment portfolio incorporating a wide range of different asset classes. The actual blend of assets should be determined by their objectives and attitude to risk.

"Given how far markets have fallen over the last year, it might make sense for some people to top up their equity exposure. This has the added benefit of averaging down on the 'book cost' of their shares, and at a time when valuations appear quite attractive over any sensible time horizon.

"However, it is not appropriate to add equity exposure to an already predominantly equity based portfolio. In this case one might consider other assets such as high quality corporate bonds or commercial property instead.

"The MSCI World index bottomed on the March 6 and we have seen a significant rally since then. What is fascinating is that absolutely nobody called it in advance and in fact none of the so-called experts have subsequently described it as anything other than a 'dead cat bounce'.

"We may not know for some time as to whether it actually was the bottom. There was certainly a washout of private investors in the week running up to March 6, with an extraordinary $30bn being sold out of US equity mutual funds, which is the kind of capitulation that can mark market lows."

JEREMY BATSTONE-CARR, CHARLES STANLEY

"I'm not convinced that the recent rally is the real thing. Plenty of imponderables remain regarding the latest TARP extension [US toxic assets bail-out]. Also, we're closing in on the end of the quarter so some window dressing from deeply oversold levels also taking place.

"Essentially, the blizzard of daily macroeconomic data releases will gradually tell us when we're past the worst and things are convincingly less bad. We suspect that that time will be confirmed in the second quarter and investors will start to buy risk assets again as the trough in corporate earnings becomes more clearly visible (probably in the final quarter of 2009 or the first quarter of 2010).

"The history of previous earnings recessions is that investors typically buy equities about six months from the trough and do well over the ensuing six-month period. Typically they buy cyclicals over defensives and mid caps do well. Only at the trough can the investment case for financials be made convincingly, although they have bounced encouragingly off multiyear lows so far.

"Thereafter we see clouds looming again. The huge fiscal stimulus leaves us all with a huge debt burden while the monetary authorities will be looking to take some earlier easing off the table.

"Our best guess is that the cross section over the next three years will look like recession-revival-recession, not an obviously propitious environment for equity investing although, as ever, the skill will be to get the timing right and the thematic call right."


Telegraph Invest Direct

Make the most of this years ISA allowance through Telegraph Invest Direct, provided by Skipton Financial Services Limited. To find out more, please call 0800 085 5337 or for 0% initial commission and great savings, invest online at www.telegraph.co.uk/investdirect.

http://www.telegraph.co.uk/finance/personalfinance/investing/shares/5047837/Stock-market-Eventually-shares-will-have-the-mother-of-all-rallies.html

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Bulls sniff the air as signs of a turnaround emerge

Comment: bulls sniff the air as signs of a turnaround emerge

Take a glance at the most popular funds sold this year and you quickly get an idea of the mindset of investors – it is one of caution. Cash and corporate bonds have been the order of the day.

By Paul Farrow
Last Updated: 8:22PM BST 01 May 2009

It always takes a brave soul to go against the crowd. It takes an even braver soul to take a punt on riskier assets in today's grim climate.

But you begin to wonder whether investors have got their timing wrong – again. I say this because the first month of our Fantasy Fund Manager competition has shown some staggering results from equity-based funds.

More than 98pc of the thousands of players who signed up at the beginning of April to play the year-long portfolio game and a chance to win £50,000 have delivered a positive return so far. The average gain is 4pc. The portfolios of more than a dozen are up by more than 15pc, with the leader of the pack up by 24pc.

The performance of some of the actual funds during the first month may also surprise you. The F&C Private Equity trust returned a staggering 68pc, while the second best performer, Gartmore Fledgling, climbed 39pc. Believe it or not, a commercial property trust rose by 30pc.

One of the reasons for the bumper gains is that these leading funds are investment trusts, whose share prices have been trading on large discounts to net asset value because confidence had hit rock bottom.

When such a trust has a reversal in fortunes, it gives an added boost to the share price as the discount narrows on the good news.

But the past month's numbers also go to show that there is money to be made, despite the severe recession, and that not every company is a busted flush.

Confidence is often the overriding factor when it comes to share price movements, rather than company fundamentals.

The outbreak of swine flu gave stock markets the jitters before the first person in the UK had been diagnosed. The initial volatility, which subsided, had nothing to do with profits and losses.

There have been gloomy forecasts since the financial crisis first reared its head more than a year ago, but the stock market optimists are slowly beginning to be bolder and more open in their thoughts. For some, the worst may be over.

Certainly, Gervais Williams could hardly contain his excitement when I spoke to him last week about his fund, Gartmore Fledging Trust (which invests in the smallest companies in the FTSE All-Share). "It is an astonishing portfolio of unloved companies. Many are trading at 20pc to book value, huge discounts with yields of 9pc."

Mr Williams is seeing opportunities in well known businesses that have been relegated to the bottom of the FTSE in terms of size, but could return to former glories. He cites JJB Sports, the recession-hit sports retailer, as an example. Its share price was around 3p but it is now trading at 23p after it announced an agreement that could secure the company's future. That the FTSE100 closed the week at an 11-week high has also led to expectations that we are about to enter a bull market.

Anthony Bolton reckons that we may already be in the first days of a bull market. He is worth listening to. Mr Bolton, you may recall, is as close as you will get to a fund manager having the Midas touch, turning £1,000 into £147,000 over 28 years.

He says that "all the things are in place for the bear market to have ended". And "when there's a strong consensus, a very negative one, and cash positions are very high, as they are at the moment, I'd like to bet against that".

Mr Bolton correctly called the end of the commodity bull run last summer and anyone who heeded his advice then will have been saved from a mauling.

The majority of fund managers and equity analysts have, until know, been reluctant to call an end to the bear market. Many still won't and there continues to be far more stock market bears than bulls out there. But it gives us reason to hope.

Lies, damned lies and statistics
Last month, Nationwide said that house prices rose by 0.9pc. As I have said before, house price indices can be unreliable. Nationwide, for instance, uses its own mortgage-offer data and takes figures used in the previous month.

That's not all. The Nationwide index is seasonally adjusted, rather than showing actual price changes. If you look at the real price change, prices actually rose by 2.2pc in March, not 0.9pc, according to Ray Boulger, the mortgage expert from John Charcol.

Mr Boulger admits the housing market is seasonal but says that there are so many other factors, such as the availability of credit, confidence and interest rates, to consider too. And given the current conditions, they are extremely relevant factors in determining whether prices have fallen and by how much.

Nationwide said last week that its seasonally adjusted figures show that prices fell by 0.4pc in April. But if you want to enjoy the Bank holiday on a more positive note, look at the "real figures". They show house prices rose by 0.6pc.

http://www.telegraph.co.uk/finance/personalfinance/comment/paulfarrow/5258390/Comment-bulls-sniff-the-air-as-signs-of-a-turnaround-emerge.html


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