Uh Oh: Small Investors Pile In [by David Lehman]

If there are two sure-fire warning signs for the stock market, they are

(1) the re-entry of the retail investor, the little guys and gals whose fingers and toes were so badly burned in the 2008-09 market meltdown, and

(2) the search for "alternative income plays," such as emerging market junk bonds.

According to our man in the Street that begins with a river and ends in a cemetery, the first of these warning signs is upon us in a big way, with Mr and Mrs Main Street shifting their 50-50 stock-bond portfolios into "all in" common stock mutual funds.

Does that mean we have reached a market top? "Not necessarily," said my source (who wishes to remain unnamed). "Momentum counts for a lot, and it is as unwise to buck the main market trends as it is to fight the Fed. By sheer momentum, the rising tide will continue to lift all the boats through 2014."

But then what? "Steer clear of overvalued equities, as judged by balooning p/e ratios. That means you should resist the temptation to buy Tesla or Twitter or even Netflix. They are hot for a reason, but their current valuations factor in best-case scenarios for future growth. When somehting happens to prick the bubble, and that something could be anything from a foreign crisis to a natural disaster, the stocks to hold are the ones that are bound to recover their luster at some point. In this category are blue chips on the order of American Express, Boeing, Chevron, Disney, DuPont, JPMorgan, Lilly, Pepsi, Procter and Gamble, Schlumberger. (This does not count as a recommendation list, merely an example of a diversified portfolio.) If you are employed and have a retirement plan, do not veer from your program -- you will enjoy the benefits of dollar-cost averaging and as a long-term investor you may make a bear market's depressed prices work for you."

Any tips? Our man in the street smiles. "When undecided between odd and even, I tend to go for the odd. Read Barron's, invest for the long term, and trust in god." -- DL

Comments

[Terence Winch]

But what should I do with all my bitcoins? They're piling up all over the place.

[DL]

Bitcoins? "I wouldn't touch them." "You can't touch them." "Precisely."