Thursday, May 17, 2012

Even the pros don't like stocks right now

Worried about the stock market? You're not alone. From CNBC:
Wall Street strategists are the most negative they've been on stocks since the bull market began more than three years ago.

The consensus view of U.S. equity strategists from major banks is for investors to allocate just 52 percent of their portfolio to stocks and the rest to fixed income, commodities or cash, according to a Bloomberg survey.

This is the lowest allocation for stocks since the nearly 50 percent level that the survey reached back in March 2009.

Well, we've been hearing a lot of bad news lately, from China to Greece. In America, banks seem to be up to their old tricks, with JP Morgan behaving more like a hedge fund than an FDIC-insured bank. And clearly, Republicans are still determined to sabotage the economic recovery, no matter what it takes.

This is also, typically, a bad time of year for stocks. "Sell in May and go away" is the old adage. And according to this article, the S&P 500 is already near a three-month low. Scary, huh?

But note the last time the pros were this negative - March, 2009. That was one of the best times ever to invest in stocks. I've been worried, but this article actually seems like good news to me. (Note that the pros rarely get too negative, because they make money from other people investing in the market. You have to look at this in relative terms.)

As Warren Buffett says, you have to be greedy when other people are fearful, and fearful when other people are greedy. When no one likes stocks, prices tend to be low and there's a lot of money sitting on the sidelines, available for investment. When everyone loves stocks, prices tend to be high, with little extra money available to push them higher.

Well, I have no idea where the market is going from here - and neither does anyone else. I can't be overly optimistic, but I'm very glad to hear there's this much negativity.

We've been in a bull market since the last time stock market strategists were this negative, just a few weeks after Barack Obama took office. (Just think of how much Wall Street would hate him if they hadn't been making money hand over fist all this time!) Bull markets don't last forever, but this is a very good sign.

I don't give investment advice, and I don't know how I'd advise you if I did. But if you only invest in the stock market when everything looks wonderful, you'll be pretty much guaranteed to pay too much for what you get.

Of course, it's a whole lot easier to go along with the crowd. Then, if you're wrong, you won't be alone. If you lose money, everyone else will be losing money, too. No doubt that's comforting.


Jim Harris said...

I keep socking away all the money I can in my 401K hoping that buying while times are bad will mean that my portfolio will expand when times get better and I can retire. If not I'm SOL.

WCG said...

If times don't get better, we're all SOL, Jim.

Still, we've been in a bull market for three years. Since Barack Obama has been president, the market has done very well indeed. (So much for that 'socialist' label, huh?)

But we had two bad crashes during the Bush years, and the last one brought the worst economic collapse since the Great Depression. I've made up my losses, but I haven't made much. (Taking inflation into account, I probably haven't made anything.)

So, yes, I'm hoping for better times. But I can't say that I'm optimistic. We don't seem to have learned anything from the disasters of the Bush administration.