Sunday, January 27, 2013

When is the current bull market coming to an end? What!


You may have recently been reading about the impending end of the current bull market as some pundits may ‘forecast’ with great certainty. Heck, what bull market?
Yet, if you look at a recent stock price chart of the S&P500 it is obvious that since March 2009 we have been in a powerful bull market which has risen from a bottom of 800 to today’s 1500. Yes that is right, we’re back at the market heights of 2007-2008 and investments bought in March 2009 have ON AVERAGE nearly doubled in value.  In the U.S. that is! Well Europe has in spite of all the debt crisis and recession whining gone up as well. Since last September when we recommended to aggressive investors on this blog to buy Ishares European 350 fund (IVV) it has gone up from $36.16 to $41.85 per share; that is a whopping 15.7% in less than 4 months!

Chinese stocks have come to life again recently as well thanks to the latest economic data released by the Chinese government (J). Even the Canadian markets have shown some improvement, but due to the still depressed commodity prices and the landlocked position of Canadian oil and gas, our economy and market has lately been lackluster.
Still although we’re in a bull market, many Canadian investors have barely experienced its benefits. But then, in the first 8 years of this century, Canada’s stock markets were rocking and we’re still having a hangover! Remember, investment returns are volatile but do tend to revert to its average long term performance. Also, the U.S. economy is only recently showing some solid performance; so does China and in Europe they’re still in recession. Commodity economies (like Canada) tend to trail the industrialized economies; so our good times lie still a bit in the future.

But yes, we are in a bull market with this wall of worry that seemed to never end. Now things are changing, the majority of investment advisers and gurus and pundits claim that the stock market is likely to go up in 2013. Well, before you know, these guys will have forgotten their client’s pain from this last decade and start cheering that the market ‘can only go up’ and that this is a ‘new economy’ and that ‘winners buy only speculative growth stocks’ and that ‘Warren Buffett’ is passé!’
Just like we were looking for the silver linings and ‘sunshine at the horizon’ during the dark times, now we have to turn a bit more cautious and start to look for signs to worry about.  Not to run at the first sign of trouble, but to be prepared for the speculative froth of the masses and to start building cash for the next major downturn. Considering that the current bull market is now running for close to five years, we should expect the next major downturn to be here in 2 to 3 years. But before that, I’ll bet that there are still quite a lot of market highs waiting for us. These are not times to run along with the hysterical masses and start buying loads of stocks. To the contrary we want to take profits in the most popular investments and build our cash piles and to fortify our portfolio to withstand the coming slaughter and solidify our cash flow.
One thing we should have learned over the years and certainly over the last decade or so. We want to own solid cash-flow creating investments; their market prices will fluctuate with the psychological moods of the markets, the media, and the public in general. We don’t care about market price unless it becomes so unbelievably cheap that we can no longer miss the opportunity to buy them or… if prices will get so unbelievably expensive that we cannot ever hope to make so much money again and sell (some of our stuff). Our approach is that we let the fools do whatever fools do while we accumulate cash flow at a good price.

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