I can see all obstacles in my way,
Gone are the dark clouds that had me blind.
It's gonna be a bright (bright), bright (bright) sunshiny day.
At this juncture the stock market has truly become a thing of beauty, an object of scorn and a diamond in the rough. The stock market has become all of these things, and more, to people that are all looking at the same thing but wearing different glasses.
*Tune in this weekend to our Business Block, Saturday beginning at 10am ET, for more with Charles Payne and the entire FNC business team.*
The pessimist sees the stock market as a black hole, a place where early retirement, indeed retirement in general, vanished along with all the fun of the go-go 1990s. These folks are holding onto former high-flyers, stocks that once changed hands at share prices in the triple digits but now toil in the bottom of the barrel, changing hands for less than $10. For this group of erstwhile investors, the major indices aren’t at four-year highs, but instead still too far down to let go of the second job.
The purest sees the stock market as a place where value continues to exceed reality, as price to earnings ratios and other valuation metrics are well above historic norms. Moreover, they think we’re in an aged bull market. These guys and gals believe that paradigms never change and that the earnings cycle is nearing its peak. Hence, stocks are overpriced and due for a correction.
The cynic sees a place where the rich always get rich and the suckers are the ones without the inside information. They know the market is making bigger strides but they don’t believe in the market. It isn’t even that they think the fundamentals are faulty, despite their disdain for all the corporate malfeasance that occurred, but instead have a total disdain for the stock market in general.
Then there is the indifferent crowd, those folks that simply don’t care what the stock market is doing because they’ve moved on to more lucrative pastures such as real estate and, who knows, maybe gold coins or alpacas. Of course these folks are typically the spiritual heirs to Ralph Cramden, chasing the latest dream in the hottest markets.
And then there are the optimists, a camp in which we place ourselves, where we see the potential and the opportunities. One can be an optimist and be realistic at the same time; it isn’t oxymoronic to see good things but also brace for bad. The interesting aspect of being an optimist is that you take the heat early but get the biggest rewards when it is all said and done. Moreover, in the end, all the other camps eventually will put down their glasses and eventually see the market the way the optimist sees the market. The key, however, for those prescient enough to buy when it seems like the rest of the world is selling is to hold through the bumps in the ride. This doesn’t mean one should hold those positions that have weak fundamental stories; there is a difference between pure hope and faith based on facts.
If you are currently a pessimist, purest, cynic or just plain indifferent about the stock market but would like to change, to wear glasses with a rosier tint, these are the things you should do:
A) Become a student of history. The stock market has gone through peaks and valleys in the past, but in the end it has been the absolute best place to invest money for the long haul.
B) Use five-year charts of the individual stocks and indices. Right now it may feel like you’re chasing certain stocks, that they’ve already made their move, so it is essential to get a visual as to the potential for stocks by seeing where it has been before.
C) Drill down a bit. Find out which companies are the best in their industry, have strong revenue gains and strong profit margins. Find out which companies are coming on strong, rising out of the dust heap, and living up to potential or approaching former glory.
Obviously there is a lot more to successfully investing in the sock market, but it begins with first getting in and then having the wherewithal to stay in. One should be driven by contained greed, which is different than looking for miraculous returns overnight, and has more to do with reasonable expectations. We think its time to see clearly, and look out far into the future. When you get in the market don’t worry about all the other camps. The fact that they exist only strengthens our resolve, for these are the folks that will carry the stock market to dazzling heights over the next couple of years.
One of my favorite stories about cynicism and greed has to do with Sir Isaac Newton and the South Sea Bubble. In 1711 the British government cut a lucrative deal with the South Sea Trading Company, which had purchased a bunch of debt from the Kingdom. In return, according to the scuttlebutt at the time, the company was to be rewarded with exclusive rights to ports in Chile and Peru operated by Spain. Spain on the other hand had different uses in mind, alas. During the period of hype shares in the South Sea company soared from 100 pounds to more than 1,000 pounds. Initially, Sir Isaac Newton, declared it was nuts for anyone to buy the shares, but after a few months he, himself couldn’t resist temptation and took the plunge. After making a swift financial killing of 7,000 pounds, his next foray saw him lose that amount plus his entire fortune of 13,000 pounds.
The moral of the story is that the best time to get involved in any financial instrument is usually when there are large swaths of the population eschewing that investment. There is a large swath of the population that isn’t investing in the stock market these days. We think they’re wearing the wrong glasses.
Tune in this weekend to our Business Block, Saturday beginning at 10am ET, for more with Charles Payne and the entire FNC business team.
Charles Payne is the founder and CEO of www.wstreet.com and appears regularly on FNC's Cost of Freedom Business Block.
Charles Payne is the host of Making Money with Charles Payne (weekdays 6-7 PM/ET).