I agree with Bruce McCain that one must maintain a disciplined perspective on the investment philosophy that they follow. But my philosophy is altogether very different from Bruce’s. It’s a very long-term perspective that’s well-suited for individual investors who prefer to make their own investment decisions, especially those who with less than $100,000 to invest. At that level, you would not have sufficient assets to warrant access to advisors such as Bruce and his team who manage actual stock and bond portfolios, instead of advising their clients to invest in mutual funds. But even those with $100,000 or more to invest and who thus qualify for professional services should be aware that few, if any, professionals predicted the crash of the markets in 2008.
Why it’s important to fight the tape — and the Fed
One reason Bruce believes that you should be bullish right now is because you shouldn’t “fight the tape.” His discipline or style is to be bullish when others are bullish and to invest in the stock market when others are aggressively bidding up the prices for shares. But I strongly disagree that investors should not fight the tape. What if you had taken the same approach with the Nasdaq composite index after it peaked at over 5000 in March of 2000? Similar to what happened after the crash of 1929, the Nasdaq had five separate down phases until it reached its ulimate low of 1114 on October 9, 2002. Each of those down phases were followed by an exuberant rally only to be followed by a new low.
Another reason why Bruce is bullish is because he argues that you shouldn’t fight the Fed. But while the Fed’s lowering of interest rates can induce a rally, a big problem that Bruce is not confronting is that interest rates are already at their all-time lows. This means that the only place they can go is up. And increasing interest rates are the worst possible scenario for the stock market.
Investment recommendations
After I determined that a super bear market was upon us in October of 2008, I suggested that my readers and followers maintain 80 percent of all their liquidity in short-term U.S. government securities with less than two-year maturities, or the equivalent money market mutual funds that hold these securities. I also suggested that my readers invest 20 percent of their money into the stocks of companies in the online financial sector, which I believe is the most promising of all of the 216 industries and sectors that I follow.
My rationale for investing in this sector of the economy is based on the simple fact that it’s the one sector that directly benefits from the current global financial crisis. As more and more individuals become increasingly frustrated with their current advisers and brokers, they will decide to become “do-it-yourself” investors.
That economic downturns can be good for certain industries is shown by the performance of the casino industry, which was a stodgy industry with 100 percent of all gaming revenue occuring in Nevada. But when the rolling recessions of the 1970s hit and slashed the budgets of all 50 U.S. states, casino gambling was deregulated by New Jersey in 1978. All of the casino-related stocks subsequently multiplied in value, and the casino industry has become one of the top secular growth industries in the U.S. over the last 30 years.
The inability of mutual funds, brokers, and financial advisers to protect individual investors from the stock market crash of 2008 is why I am so bullish on the online financial sector. The industries within in it, including online brokerage, online financial information, and online financial education, each participate in the growing trend of “do it yourself investing.” Even within a secular bear market and a recession, which is what I believe we are in now, certain industries, sectors, and companies will benefit.
Follow Blog War on the future of the stock market:
- Bruce McCain, 6/1: This Bull Market Has Legs
- Michael Markowski, 6/2: The End of This Bear Market Rally Is Near
- Bruce McCain, 6/3: Actually, the Bear Market Might Be Ending
- Michael Markowski, 6/4: This Bear Market Still Has Claws
- Bruce McCain, 6/8: Don’t Fight the Tape With This Bull
- Michael Markowski, 6/9: Why It’s Important to Fight the Tape — And the Fed
