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The Winning Streak

Ever been a part of a winning streak? Either as a fan or a competitor?

They are great. They are fun and we tend to be very superstitious along the ride. We also must conjure up some luck as well. No good winning streak goes without some real good luck.

I remember multiple streaks as a Braves fan but, more recently, as a head coach on my Little League team. We started off the year mediocre, but we went on a five game win streak which helped us clinch our division and the number one seed in the tournament. (The results from the tournament will go unmentioned here).

But along the way, we had some easy victories and then we had some tough ones. But throughout, we had a little of ole Lady Luck. Luck in Little League can be many things, but for us it was the ability to turn our lineup over (meaning getting through our bottom lineup and back to our top of the order) at the best possible times.

We knew we couldn’t win forever. And we didn’t. We stumbled, but we cherished the good times and made the most of them. We didn’t consciously doubt ourselves through those times; we rode the roller coaster one step at a time. We took each stride as it came.

 

Complacency may equal opportunity

I was reading an article the other day of a reporter whom I greatly respect. His recent piece talked about how people are complacent today in the markets and they are inevitably going to get bit in the butts.

He says they too easily forget about the past and how they got burned. And, he said that they are taking too many undue risks.

Talking to clients and prospects every day, I don’t yet see this.

Many people are still afraid of entering the markets. They continue to say that the markets are too high, that they want to wait for a market correction to put cash to work. To me, this sounds like a still weary investor. Not one that is participating in a bubble.

 

Market volatility is currently near extreme lows and this could make people extremely weary and I understand. But optimism isn’t at extreme levels yet.

A better sign to watch for is when people show extreme comfort with the markets, rather trepidation… as they are right now.

 

BREAKING NEWS: A market drop will occur again

Just not right now.

Investing in the equity markets comes with many risks and also volatility. Current fundamentals of equities don’t suggest an extreme bubble.

A correction within the equity markets of 5-10% would be comforting to many, but waiting for something more than that may be a long wait.

Why?

Because a correction in equity prices of that extent will present many opportunities to invest in companies at great valuations.

Take Exxon for example; the company has a P/E of 13.63 and is earning $2.10 per quarter as of March 31st (Bloomberg Data). If earnings stay flat and the price drops 10%, the P/E would go to about 10.7. The last time this happened? Summer of 2011 and winter of 2009, both very opportunistic buying opportunities.

There continues to be too much cash out there that has continued to miss out on the market run-up that is waiting to get back into the market. This cash will support equities and likely not allow for too much of a fall.

 

The Major Jinx

Some may think that I am jinxing the heck out of this market. And now that I don’t believe we will see a drastic correction, it will inevitably happen.

To me that’s fine, because I continue to believe in the fundamentals of this current market, along with the exterior influences, mainly the cash on the sidelines and in bonds.

And to those that are worried that a fall in equity values will drastically impact their retirement—well, those people are invested in an inappropriate allocation.

As we always say, own your age in income. As you get older, become more conservative and thus worry less about what happens within the equity markets.

Right now we continue to be a part of a winning streak within the equity markets. It won’t last forever, so we must enjoy the time we have now.

The beauty of the equity markets though is that more often than not we are in a winning trend and, for that, we must take advantage of losing streaks when they occur. Because history tells us to do so.

 

(All data used within The Capital Course was provided by Ned Davis Research)


 

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