Don’t Wait for the Parade to Buy
“They don’t ring a bell when the market turns.”
– Old Wall Street axiom
Stocks are going higher.
The bond market is weakening.
The tides are turning. Without hesitation, you must now make a plan to strategically buy stocks.
I understand how difficult it is to switch mental gears and embrace an asset class that has caused so much suffering over the past 13 years. But you have to realize that a major market turning point like this isn’t marked by fanfare and bravado.
They’re not going to throw a ticker tape parade along Wall Street to mark the beginnings of a powerful rally. And stock market missionaries aren’t going to interrupt your Saturday morning breakfast to tell you how equities are set to take the investing world by storm.
Quite the opposite, actually.
Unfortunately, when the parade does finally come barreling down your street, you’ll know you’re too late. By the time you’re receiving stock tips from the 14-year-old kid who cuts your grass, the bulk of the rally will have already passed you by.
The opportunity is presenting itself right now. So you need to ask yourself: Where do I want my money in 2013?
My colleague Jonas Elmerraji summed it up perfectly over the weekend:
“At some point, all of that missed opportunity is going to be tough to ignore for the folks sitting with their cash on the sidelines. And that, in turn, should help to fuel stock buying in 2013. For the past few years, the decision of where to park your money has come down to this: Would you rather park your cash in treasuries and guarantee your principal slowly get eaten away by inflation, or would you rather put your money in stocks and get a potentially higher return in exchange for more risk?
“A glimpse at treasuries over that time period tells you which option most folks have been choosing — by now, you know that it’s not stocks.”
Here’s what you should know right now as you begin to plan your approach:
- Fear is quietly subsiding. For much of last year, large-cap stocks that pay dividends were very much in favor as an indecisive market whipped back and forth. Stocks ended the year on a high note with double-digit gains intact for the S&P 500. But that doesn’t mean investors felt very good about their prospects.In reality, 2012 was a year of uncertainty for Main Street and Wall Street alike. Fund managers underperformed. And average investors continued to pull money out of stock funds at a record rate.But this time around, riskier assets — such as small-cap stocks — are leading the rally. After months of lackluster performance, the Russell 2000 posted gains of 5% last week. That beats out all the major indexes — including the red-hot Nasdaq. For comparison’s sake, the S&P rose about 4% during 2013’s first week of trading.Eager buyers fighting to get into riskier small-cap names shows us that much of the fear out there is beginning to go away.
- Healthy rallies are stair steps — not rockets.The market is up big so far this year. But that doesn’t mean it will continue to climb at this pace as the rally matures.Every rally has its pullbacks. So when you do find a name you like, don’t get caught up in the day-to-day emotions of the markets and buy when the S&P is up 2% on the day. Instead, keep an eye on how the market behaves on consolidation days. As pressure is released, countless buying opportunities will emerge.Look to buy your favorite names as they bounce off their short-term moving averages in the coming weeks.
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