I don't know about you guys but I'm starting to get dizzy from this market. It seems that everyone is a little giddy and it worries me. I heard a trader say that the market was up today because it was open. I sold a stock yesterday (RIMM) that climbed over 5% today. Under any normal situation I'd be hating myself right now. Trouble is what I bought with the money was up 7% so as crazy as it sounds it was actually a good trade. I'm glad I missed a 5% pop. That's not right.

I'm on a speeding train and find myself wondering if there is anyone driving it. Anyone else feeling a little uneasy? I can't explain it but there is a voice in my head telling me that I need to be careful.

 

Well the past few years the market has been doing nothing but going up. I think within a 1-2 the market will come back down quite a bit. I'm quite nervous myself with the markets right now. The old saying " what goes up must come down"

 

The obvious isn't all that much help. What we need to know is when and by how much. I don't see it, maybe that's the problem. I saw the one in March coming and I went to 50% cash. I feel it again but I don't know if it's just fear of heights or a real instinct based in logic.

If you look at the media then you can't possibly see anything but upside. Inflation is in check, a rate cut will come this year, full employment, huge worldwide economic expansion, huge spending on infrastructure, interest rates are stable, companies have record earnings and are swimming in cash, public companies are merging at reasonable premiums, P/Es are reasonable, expectations seem in check with performance, companies are pushing their excess cash out to shareholders and buying back massive amounts of their own stock, the bull list goes on and on.

It's possible that after 2000 things were set back so far that we are just now playing catch-up with where we should fairly be. There just doesn't seem to be any insanity in it. Were we really so far behind, so unrealistically conservative that this rally over the past two years was due?

 

. . . has nothing to do with the stock market.

 

Diversity is a good thing. Playing individual stocks or day trading is risky and best left to professionals. Maybe Cthree is a pro in addition to running this site.

 

Perhaps I should have said diversification. For the small invester, mutual funds are hard to beat for low maint., low risk, and decent returns.

 

No, I'm not a pro in any way. I invest my own money and simply share that experience here to entertain others. I have no formal training in commerce and nothing I say should be construed as investment advice in any way shape or form. It's just for fun.

I'm not a day trader and I don't "play" individual stocks. I manage my portfolio of about 8 stocks as a single diversified portfolio, not as islands unto themselves.

For a small investor the best way to invest in the market is with an index fund if you want decent but not great returns. Index funds outperform mutual funds in the vast majority of cases. Mutual funds perform the best when they are small. Once they get large even the best funds start to under-perform due to the mechanics of managing such huge assets. Most funds rate themselves on return since inception but if you look at only the most recent years you find them being pretty bad.

Here is an example, the grand daddy of all funds, the Fidelity Magellan Fund (FMAGX) compared the S&P500



Pitiful.

Here is another. This is one of the top performing funds over 5 years boasting a 39% annual return



It's up 11% YTD but down 8% over the past year. If you look at it it's heavily oil and oil services dependant and if you compare it to the OIH oil services ETF over the last 3 months:



you can see where the returns are coming from.

I subscribe to the idea that funds of any kind (index, ETF or mutual fund) contain more shit than substance and are poorly diversified. Mixing several such funds only worsens the problem to the point where you have no idea what you are actually invested in or in what proportions. I believe that you can build your own basket of between 5 and 10 stocks which is well managed, truly diversified and delivers exceptional returns with only a little discipline, effort and interest on the part of the investor; that you can double or triple your returns with as little as 2 hours a week of research (more stocks, more work). You can pick only the best stocks, the cream of the crop, and skip all the filler most of these funds are packed with.

 

Absolutely!

You should get some big stocks and some little stocks, some fat stocks and some skinny stocks, some red stocks, some blue stocks, some green stocks and some purple stocks, some rich stocks and some poor stocks, some good stocks and some bad stocks.

 

Perhaps.

Unfortunately, most people - including most investment advisors - have no idea what true diversification is.

 

Please, tell me which these are.