Risk Happens Fast.

Right on time and right on target the small investor and part time stock picker crowd has shown up to buy stocks just when the market has reached a value top and looks to be teetering towards falling.  We have been watching, trading, and investing in this market for now over three and a half decades and it is always the same.  Human nature being what it is the crowd comes in when confidence is at a top and animal spirits feeling good.  This for us is a clear sign of a market top.  If this also is a economic top remains to be seen. We expect the economy is reaching a point where the slow slow growth of the new normal is setting in and with it a new frugality even among the younger set.  Check out how tough the economy right now is on Walmart for example and how mortgage rates can not push past the upper 4 per cent range every time it gets there.  In either case buying when stocks are at their highest price is foolish, but unlike people who search for bargains when buying other retail merchandise the retail investor thinks that since stocks have been going up for a while now they will keep doing so forever.  Risk like today happens fast and you can be sure judgement day cometh and that be quite soon. 

We have tried to several decades now to persuade part time investors to NOT try and pick stocks for the quick buck or to make the lottery million, but to just buy a basket of stocks and let the market drive your wealth creation.  But to no avail in the past two weeks we have been asked at least a dozen times which stock we believe will make them millionaires and if the stock they got a tip on and are going to buy will do so as well. Trust me they WILL be buying that stock pick no matter what we suggest. The temptation is just to strong and the greed to great.  They will soon find out it was not smart and/or run out of patience and sell later .

For several months now we have been suggesting buying municipal bonds and even went so far as to suggest our favorite was NNC a municipal bond fund for North Carolina investors to make money in this market.  NNC ended yesterday at $13.14 right at a full dollar over our purchase prices in January of this year.  Basically a 10% gain in four months including interest payments, that an annualized 30% gain with some of that gain tax free.  Not bad for a safe stodgy bond fund huh?  Stocks too have been going up, but right now bet many of you are worried about your pick and maybe wanting to sell it?   The best choice all along for stocks is a index fund,  make that the Vanguard 500 index fund, to keep your money in the big boys and safely producing gains and those lovely reinvested dividends.  Not the sure fire stock picks. 

 For those with larger portfolios, bet you our large portfolio of NC municipals over the past four months have beaten anything you got in your portfolio or anywhere else. We will wager lunch on that, call us and let's bet lunch.  Buy bonds in a topping out interest rate market and buy stocks in a bottoming out interest rate market, simple easy investing but even the big boys and professionals miss that one too.  Louis Rukeyser would be something proud of our portfolio right now.  

Reviewing our 10 predictions back in January regarding the financial predictions  we seem to be doing well.   ARCP which we picked for a safe buy for 2014 is about $1 above our buying price, raised it's dividend, and still paying right at 8%.  Monitise, MONIF, has not performed as well, but we still got about 7 months left in the year.   Interest rates still stuck in the lower 4 per cent range offers a once in a lifetime entry point into real estate that should be considered. 

So risk happens fast and right now with fear overtaking greed as the predominant emotion in the markets we again suggest NNC which is still undervalued by about $1 per share at the current price. Otherwise prepare your cash for when the market does tumble and you get some opportunities to buy some great companies at bargain prices.  Not great companies at high prices.  Price is what you pay, value is what you get.  Stocks and bonds have made money than any other investment, business ownership, or anywhere else one could have placed their investment assets over the last hundred years and will do so over the next hundred years. The key here is patience as the best investment at many times is keeping your investing assets in cash and waiting for those opportune moments or better yet for most people stay invested and ride out the market tops and bottoms to lifelong wealth creation by great American companies.