Back on 11/24, I wrote about FOMO coming on quickly. I have turned bullish, but I do think the market is very high in many respects. There are some great value companies out in the market that are still buys. It's like a treasure hunt at Ross Stores. The nice stuff is there, you just have to dig through a crap load of ugly stuff to find them.
I regularly watch a chart in Barron's called CASH TRACK as a metric to gauge investor sentiment. I attached this week's charts below. For many months, the flow into equity mutual funds has been highly negative. It finally shows positive movement into equity mutual funds. To me, this is a classic.
We are at a very high point in the market - major indices have hit new highs. People who either sold out in March of this year or hadn't invested in the equity market before are rushing in. While the market could still go up a bit, buying at this level doesn't leave much wiggle room if we experience a market downturn. Safety should always be first!
This week in Barron's they interviewed a number of renowned investors to get their takes on the environment after COVID. Howard Marks was one of those interviewees. I listen to Marks carefully. I constantly refer to his two books - The Most Important Thing and Mastering the Market Cycle. Below is a quote by Marks which I think sums up the current market very well.
Question: In your book Mastering the Market Cycle, you discussed cycles and attitudes toward risk. Where do we stand on those issues now?
Mark's response: Fear of missing out has taken over from the fear of losing money. If people become ultra-risk-adverse, that's how you get great bargains. Because they're risk averse, they won't buy. They sell at low prices. But if people are risk-tolerant and afraid of being out of the market, they buy aggressively, in which case you can't find any bargains. That's where we are now. That's what the Fed engineered by putting rates at zero.
Be smart, be well-read, be aware and be successful.
