So you missed big gains in 2013: Now what?
Look before you leap, and review the status of the bull market. Here are the questions to ask.
To be sure, it has been an interesting year in the stock market.
At the beginning of the year, almost no one saw gains of 20 to 30 percent for the stock market indices and most macro players continued to believe that the next crisis was right around the corner.
And yet with just a handful trading days left in the year, the S&P 500 (SPY), DJIA (DIA), Russell 2000 (IWM), and Midcap (MDY) indices all sit near all-time highs while the Nasdaq (QQQ) composite remains near the highest level seen since the tech bubble burst in the spring of 2000.
Worse yet for those who saw the glass as being at least half-empty 12 months ago, is the fact that 2013 did not provide many decent entry points.
Uh, it's a bull market
The fast-money types almost universally believe that the stock market is mean-reverting animal. Trends don't last and prices will always pull back to some special level that only they can see. "Buying strength is for chumps -- the smart money waits for a pullback to take a position" seems to be the battle cry among this crowd. How many times have you seen the geniuses on TV say, "We can't buy that here; wait for prices to come in."
Except, wait, oh, that's right, calendar year 2013 offered exactly two "dips" worthy of purchase -- and both came at times when there was a decent amount of uncertainty
about the sustainability of the market's gains. In other words, it's been tough to get in.
And because of this fact, a great many managers -- especially the two-and-twenty crowd -- have dramatically underperformed again this year.
Perhaps the key thing that many of Wall Street's masters of the universe got wrong this year is the fact that it's a bull market.
Despite the fact that there were two devastating bear markets (where the S&P plunged more than 50 percent both times) in the nine-year period between 2000 and 2008, the simple fact is this is how a bull market tends to act. Yet, unless an investor has been at this game for more than 15 years, they may not be familiar with the concept.
Advice providers experiencing gain regret
But one question: How's that static diversification doing? How's that exposure to the bond market, gold, and the emerging markets working out this year? The answer is that clients seem to be complaining about the money they didn't make this year. It's a little something known in the business as "gain regret."
Look before you leap
So here's the dilemma. A great many investors have missed out on some very good gains this year. And given that 2014 is right around the corner, it's time to make plans regarding next year's strategy.
Given that the tenets of behavioral finance are clearly in play here, it is a safe bet that many investors are going to want to up their exposure to the stock market in 2014.
Unfortunately, this is called "performance chasing" or investing in the "hot dot." In short, using such an approach is fraught with danger as investors wind up "buying high" and then "selling low" (giving up on a strategy or position if it doesn't do what they expect). And anybody with a functioning calculator can attest, such a strategy doesn't tend to work out very well.
Questions worth asking
So, before investors decide to make up for their mistake of being under-invested in the U.S. stock market in 2013 and bomb in for 2014, they may want to review the status of the bull market.
Some questions worth asking at this stage include:
How far do bull markets tend to go?
Are stocks overbought?
Is the market overvalued?
What's the risk?
When might the next bear show up?
Read more from Benzinga
"Some questions worth asking at this stage include:"
7) When will the FED stop dumping counterfeit $83 billion a month into the market?
Wanna know when the market's topped? It's when the shills come out in force urging us rubes to buy.
Wanna know the "secret" to successful investing? It's too boring to write about, no money in it for the shills either. And everybody knows what it is too. Allocation, allocation, allocation. Pick a risk tolerance, and re-balance annually. It forces us to sell high and buy other stuff low.
But like I said, it ain't sexy enough to write about. Works though.
The simple truth of investing is "no one can tell you when the market will go up or when it will go down, with 100% accuracy". The best thing is to develop your plan based on solid investment advise and knowledge. Set your risk tolerance and stick to it. Don't let the opinion of others or fear, make you depart from a solid plan or increase your risk. A solid plan will get you to your retirement goal. Remember you invest for Direction, not Perfection.
Some questions worth asking at this stage include:
How far do bull markets tend to go? Four years (2010 to 2013) then 1 year bear
Are stocks overbought? Yes
Is the market overvalued? Yes
What's the risk? Extremely high
When might the next bear show up? Next week
google on david stockman bloomberg and watch the videos - mainstream and a voice of reason. we booked (locked in) 90% of our sizable profits for the year on Monday and will go to parties and sip grand marnier with beaming clients until 2014 begins. MFC was gracious enough to buy all of our stock holdings at these record highs - he doesn't mind being the "buy high" sucker. happy happy old year
My brother-in-law called me in February 2013 told me about Alcatel-Lucent ALU and Riteaid RAD. He said if he had 30k he would put it in Riteaid that day.. I told him I would look into it.. NEVER DID. ALU and RAD up over 300% this year..
The entire summer past me by and I had my thumbs up my yass and although I maintained a list of stocks to invest in, I never took the step and just got in. Almost every stock on my list was up at least 50%.
I just opened my account in October 2013. I have missed it all. If going by the most conservation returns of 50%, on the money I have allocated to invest, I missed 140 - to 180k after taxes..
I kick myself daily bc this year went by so fast and it was like a haze was over my eyes.
So what do I do now? Janet Yellen being a rookie Fed Chief and the first woman at the post (although on paper she is the most qualified nominee considered for the post) may not want to make too many waves because of the glass ceiling and such.. The FED tapering could take the whole year (2014) to whine down. She would be under siege and second guessed if the market tumbled and we still have the stagnant economy of today. The stock market is the only (or the brightest) bright spot. If she takes that away, she'll be scrutinized more than the President and the Roll out of the ACA.
I doesn't look like the Rethugs gonna shut the Gov'ment down this spring if they get that budget deal signed into law that passed the house. Other than some unforeseen event, the bulls gonna be running in 2014.
But this is me talking. The guy that could have spit at any stock in October 2012 and I would have an extra 100k in my pocket right now. Seems like if I got into the market now, I would end up losing all my hard earned cash. The sky might fall or some chit just by me being in the market. Make a plan and do the opposite of what I think would work. At any rate, I made a whole 12 bucks keeping my $ in a savings account. That was for a calendar year. FRACK!
Y'know what cracks me up? A "genius" who slams others for taking the risk of losing their shirt or experiencing "gain regret" by not buying, then asks questions like "how far do markets go" and "are stocks overbought" without venturing any kind of an answer.
In other words, buddy, your 20-20 hindsight is apparently about the same as everyone else's.. except you don't have the nuts to squeak up about what might be to come.
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