I ran across an article in Business Insider this morning which I feel is incredibly important. The great Laszlo Birinyi put forth the following argument for the continuation of the bull market:
“In an interview with Business Insider, Birinyi laid out his arguments for the continuation of the bull market. He also poked holes in many of the most popular bearish stock arguments — from high valuations to record-low volatility to breadth. He doesn’t buy any of it. Nor is he a fan of exchange-traded funds, one of the world’s fastest-growing investment vehicles. Birinyi is instead focused on something he thinks is going widely unappreciated: the massive amount of cash sloshing around in the market.”
Here is where he nails it…
“The other issue is that while the averages are lackluster, there’s a lot of trading money focused on individual stocks. The S&P may not have moved 1% or 2% in however many days, but the reality is that stocks are having really good days. You have a lot of individual stock volatility, which reflects the fact that people have the funds and they’re looking for vehicles in which to manifest those funds. They’re using single stocks as the vehicles, not broad asset classes such as emerging markets or gold or commodities. The critical ingredient in the market is cash.”
Full article here: Interview With Investing Legend
Over the years I have built my trading style around individual stock picking. I also manage over 50% of my long term capital picking individual stocks, with a small percentage in options as well. Advisers would likely have a nervous breakdown hearing this, or at the very least poke fun at my investment plan. Fine by me.
For years, Jeff Kohler at Trading Addicts has argued that maybe the indexes don’t matter as much as they have in the past. At first I couldn’t see how that could be true, but today I agree.
Long term capital has seen massive flows to ETFs and Index Funds. I feel this is due in part to lack of skill in spotting rotations before they happen.
Thoughts?