It has been a few weeks since I put out some commentary on the market and 2014. The bulls to bears are just about even so we have a 50% chance of going up and a 50% chance of going down. Now that the great year of 2013 is slowly fading in our minds; I am starting to receive the “nervous Nellie calls” about what looks like to be a normal correction in a secular bull market. Remember my mantra: bull markets don’t end until money dries up-and that is far from tapering.
One of the indicators I use is the contrarian signal. It shows that the retail investor always has perfect timing of coming back in the market at the height of overbought conditions. This is exactly what happened in January with an increase of retail investor’s activity rising 30%. We have done very little buying in fact we have been “pruning” (taking profits) just like an arborist does to trees so that he will get better blooms in the spring.
There has been a 5% correction every quarter for the past few years but it has been somewhat masked by buyers stepping into the market. What is upsetting the investors today is volatility has not been a factor for the last two years and now we are seeing 300 point moves.
Taking a long term view what we are going through now is healthy for the long term and wealth creation. This repricing will end and the next leg up for the secular bull market will continue. The biggest mistake that investors make in markets like this one is being too bearish and selling. I have always erred on the side of being too bullish because I look at where my portfolio will be at the end of the year instead of the end of the week. I am looking for entry points not exit points. This is not 2008 and no one is talking about recession (in fact GDP going forward is showing improvement even better than most think).