Running Bulls have me on Edge!
I have been taught in my medical education to look for multiple causes for a patients current condition. If I haven’t thought of a possible cause, I can not develop a plan to treat if it is indeed correct. This is how I was conditioned to come up with a differential diagnosis for a set of symptoms. This way of thinking has influenced how I think about my investments as well.
The recent headlines about the “Dow hitting a six year high” and “Dow sets another record” makes great headlines and a great bottom line at the end of the month. However, I instinctively look for news or reports that could cause the economy to slip the other way. Unfortunately you don’t have to look too far to find someone worried about inflation, oil, war, etc…..
I have definitely not been financial savvy in my life to date so I don’t have any credibility in this realm, but my question is: How long will the bull run last. It seems like everyone and their brother made 15%+ last year in the stock market and with 2007 off to a good start, this run is starting to get pretty long in the tooth.
Its important for me to remember that even with the Dow at a new high, this doesn’t mean that it cannot go higher for two or more years. If the fundamentals are right then the market should keep on cruising.
Lets look at the supposedly positives driving this market:
- good earnings growth by companies, 2006 was one of the most profitable years
- real estate has not nationally tanked, demonstrating that it is more of a local phenomenon
- low unemployment, lots of low wage jobs out there
- the American consumer has made shopping a habit regardless of the financial’s behind it.
- interest rates are still historically low and there is still tremendous liquidity in the money supply.
- oil prices should gradually fall as more supply comes on-line and we get out of this crazy winter.
These all seem to add up to a pretty rosy picture for this year. As I read somewhere before, if you call bear enough years eventually you will be right but the bulls consistently outnumber the bears.
Why do I bring this up now? The main reason is that for the first time in years I actually have money to invest. I plan to be more of a dollar cost averaging type of guy this year because the last time I invested in the market lump sum, it quickly turned south.
Let us all hope that the good headlines keep on coming.
