Apr 24, 2015
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The bull market has given way to a dangerous entitlement mentality that appears to parallel the way that investors set the stage for disappointment at the peak of the last 2 bull markets:
The mentality in 2010 was generally “should we go to cash” contrasted recently with investor aversion to holding cash. In fact, harvesting overpriced assets and waiting for better bargains could be a highly effective tactical tool from current stock and bond market levels.
During the last 2 bear cycles the S&P lost over 1/3 of its value and over ½ its value. Therefore, the index is an unacceptable benchmark for most investors during market declines and lead to taking unacceptable risk at higher levels. The appropriate benchmark for many investors should be cash flow after fees exceeding the base return target with potential capital gains exceeding inflation. Getting paid to wait was a highly effective tool for taking advantage of the last recession.
The fear and loathing of 2008-2010 has given way to a form of greed associated with “could have, would have, should have.” Hindsight leaves us with a flawed selection tool especially when prices in many areas are expensive relative to return targets. Investors at this stage are easily led to fools gold. The solution may rest in carefully and conservatively estimating the forward rates of return. If you did not own growth investments in 2012, then you might be too late. This week’s program examines current investors’ psychology in contrast to the last crisis which naturally lead to implications for forward investment strategy.
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