I still believe the real danger lies in over-weighting bonds…while the real opportunity is in...
Investing the "William Wallace Way" in a Market on Fire
01/11/2018 2:54 pm EST
Some of the leaders include UnitedHealth Group, Northrop Grumman Corp. and Avery Dennison Corp. They all recently earned “A+” (Buy) Ratings, and are up 40.9%, 32.6% and 66.6%, respectively, in the last year, writes Mike Larson, senior analyst at Weiss Ratings.
One of my favorite scenes – in any movie ever – comes from “Braveheart.” The 1995 movie starring Mel Gibson (very loosely and with many historical inaccuracies) chronicles the life and accomplishments of the Scottish freedom fighter William Wallace.
At one point, Wallace’s forces are about to fight the English at the Battle of Stirling Bridge. The English cavalry charges at his infantry, and the soldiers get more and more nervous as the horses thunder toward them.
But Wallace implores them to stand fast, saying “Hold ... HOLD ... HOLD!!!” Then at the last second, he gives the signal, the soldiers grab a bunch of sharpened spears they were hiding, and they point them at the horsemen – who end up dying in droves. Wallace’s forces win the battle.
The lesson? Success is all about timing! Had the defenders revealed the spears too soon, the cavalry would have stopped charging, and the strategy would have failed. Had they acted too late, they’d have been mowed down.
The same lesson applies to this stock market. I’ve lost count of the number of articles that share two common bearish threads: 1) Stocks are expensive and 2) The rally is long in the tooth. Funny thing is, I’m not even going to try to argue against them ... Because they’re right!
If you follow the work of Nobel Laureate economist and Yale University professor Robert Shiller, you’ve probably heard of his cyclically adjusted price-to-earnings ratio. We don’t need to get too deep in the weeds here. But suffice it to say the "CAPE" ratio is designed to show whether the market is overvalued and likely to deliver weak returns over the next several years ... or undervalued and likely to deliver strong ones.
At just over 33, the ratio is roughly double its long-term average of 16.8. It’s also higher than it was in 1929 right before the market crashed – and closing in on the all-time high reached at the peak of the dot-com mania.
Meanwhile, the bull market which began in March 2009 is now the longest for the S&P 500 (SPX) since 1928. The only exception is the period from October 1990-March 2000 run.
But you know what? Valuation is a lousy timing tool. Stocks can go from somewhat overvalued to really overvalued to massively overvalued over a span of several months or even years. If you leave the party too soon, you risk leaving huge gains on the table.
And while historical data can be useful in contextualizing a market move, you know the saying “Past performance is no guarantee of future results.” Just because this is the second-longest advance in modern history, that doesn’t mean it can’t go on to be the longest – as long as the fundamentals remain intact and continue to support the move.
I haven’t seen anything to suggest that has changed. Stocks may be expensive, and the bull market may be entering its ninth year. But the combination of strong economic growth, strong earnings growth, and strong fund inflows – not to mention the lack of a true, euphoric “blow off” move so far – tells me it’s not time to abandon this rally.
Or in other words, don’t pick up those spears yet and try to stab the bulls – because they’ll just run you over! Instead, stay focused on buying and holding the highest-rated, most-promising stocks in our Weiss Ratings coverage universe.
You can use the stock screening tools available here to identify those stocks we grade the highest across a wide variety of sectors.
But just to give you a sneak peek, some of the leaders include UnitedHealth Group (UNH), Northrop Grumman Corp. (NOC), and Avery Dennison Corp. (AVY). They all recently earned “A+” (Buy) Ratings from our system, and are up 40.9%, 32.6% and 66.6%, respectively, in the last year.
Until next time,
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