Contrary Indicator?

[Dividend Watcher]

(06-01-2014, 05:27 PM)Kerim Wrote:

(06-01-2014, 04:38 PM)daat99 Wrote: My worst fear is that I'll put all my money into new portfolio just to get it cut in half in a month time because a bear market just started.

For now, I prefer sitting on the side and wait for the bear market to show its ugly head first.

I don't blame you at all, daat. But just to play devil's advocate (and perhaps to completely contradict myself), a lot of people rightly believe that time IN the market is far more important than timING the market. The idea is that even if valuations are high right now, you are still missing out on dividends and growth in the meantime -- there is a real cost to waiting. And, we may NOT be on the verge of a big decline. Nobody at all can predict where we are headed from here. Here's an article that notes that on an inflation-adjusted basis, the S&P is not at all-time highs after all.
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Maybe the best approach would be to develop a plan to very gradually ease into the market, so that you are not fully exposed quickly, but you still get some of your money working for you?

I tend to agree with Kerim here.

daat, I don't know anything about you or your background so what I say may be totally off-base. Maybe you mentioned it someplace else but you ought to introduce yourself in the "Introductions" section so comments can be pertinent. In the meantime, I'll add my 2 cents.

First off, I don't think the market is crazy here. Sure, fair to a little overvalued but we've been here before. These levels could be sustained for quite a while. You're not seeing things like KO, PEP, MMM, etc. with a P/E north of 30 or even higher. Most importantly, you don't see people touting these stalwart companies as great deals at these levels like they were in the late-90's.

Secondly, I don't think you're seeing major companies in boom production cycles. Hiring and it's growth has been tepid, production cycles seem to have been muted and M&A, although active, hasn't been willy-nilly at outrageous valuations. You see more of this prior to a real bear market.

To me it seems part of the resurgence of profitability has been due to financial engineering as much as from sales and end-user demand. Companies have cut costs, refinanced debt at lower rates and jettisoned unprofitable product lines.

That being said, I wouldn't say this is an opportune time to establish a major portion of your dividend growth portfolio. However, as I'm one of those believers that time in the market is one facet of building wealth and an adequate income stream, I wouldn't sit on the sidelines close to 100% in cash.

Perhaps buying small starter positions in great companies would start the ball rolling. Aflac (AFL) seems a little undervalued to me here, Johnson & Johnson (JNJ) is fairly to a little overvalued here but still yielding 2.8%. Coke (KO) is still yielding around 3% here and not grossly overvalued. Chevron (CVX) seems fairly valued here and is yielding 3.5%. You get my gist. Dropping $1,000 or two (depending on what you have) on each here may be a good start to a great portfolio and get the compounding machine rolling. Then, when we do get a correction (or a bear market), you can buy bigger portions of these great companies to bring your cost basis lower. If you don't like these, choose some others.

Yes, I'm sitting with some cash with low-ball limit orders but that amount is only about 3% of my overall portfolio. I'm also still re-investing all dividends in their respective companies.

A bear market could take several years to get here, or it could start tomorrow. No one really knows. Living in fear of a mistake is no way to live.

(06-01-2014, 05:39 PM)Ok Red Wrote: I have established my initial positions - currently about 16% of my portfolio. I have 50% in cash ready to invest and will just wait until the inevitable correction. It's killing me to have that much cash, but after living through multiple downturns I know I have to be patient. The real question will be how to spot the bottom, or the approximate bottom. 20%? 40%? 50%? Who knows....

That is what I was referring to above. Sounds like sound logic to me.

Who does know where the bottom would be? I certainly don't. Perhaps buy a little with a 5% dip, some at 10% discount and a bunch more at 20-30% sale prices if we get there.

I was buying on the way down in 2008-9 and again in the 2011 swoon. Sure, most of my portfolios were in the red for a while but, as usual with large companies that have survived WWII, Korea, Viet Nam, the oil shocks in the early 70's, high inflation in the 70's-80's, double-digit interest rates when Volcker broke inflation's back, the dot.com bust and the Great Recession, they came back and still paid a dividend.

Maybe I'm too optimistic ...

"Would you like a shopping cart?"

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Don't know how I missed this. Must be my browser cache didn't update before I started writing my first reply.

(06-01-2014, 11:57 PM)daat99 Wrote: The way I see it is that there are too many experienced traders screaming 'it's going to blow" while too many newbies rush into the market.

[Emphasis mine.] Are you a trader or investor? Traders, by their own methodology, need to be in or out at the right times or they can get eaten alive.

(06-01-2014, 11:57 PM)daat99 Wrote: I can't shake the story I heard about a guy (you probably know who he is, I don't recall his name) who sold everything he had because the person that was shining his shoes started to give him stock advice just before one of the major market drops.

This story has been around since the Great Depression in the 1920's. Got any recent details?

I dunno, maybe I'm full of $%#! but I'm more optimistic.