Last week, a few incidents in Europe and the concerns about earnings and valuations of the U.S. stock market spooked investors. The reaction was healthy for a market that has enjoyed the kind of success seen in stocks over the last few years, but so much of the doomsday story was a rehash of things that were supposed to happen a long time ago. Granted, if you think the Dow Jones Industrial Average is overvalued at 6,600, it stands to reason, one would feel that way at 17,000.
Nevertheless, as the market moves higher, the valuation proposition must improve as well; considering the massive increase in the market over the last few years, there is huge pressure on stocks to prove they deserve current valuations and augur for even higher valuations. However, let's keep in mind that whenever someone uses the March 2009 low as "fair value" for stocks, they simply are not being realistic. In fact, you are talking or listening to a die-in-the-wool bear or someone that allows politics and emotions to overrule common sense.
However, the same could be said at current levels for bulls, unless fundamentals continue to improve.
Of course, I am all about finding individual names with upside potential based on a variety of factors, so discussions about "the market" should be put in the proper light. When too many stocks are overvalued, along with pullbacks, even the great names will take hits, too. However, those same great names will be among the first to rebound. If you are a long-term investor, getting caught panicking during a short-term pullback is a dangerous position. There are Challenges:
Listening to Carl Icahn has cost investors untold profits since the rally began. Yes, one day he will be "right," along with everyone else preaching caution or catastrophe, but considering his stature, it seems so reckless. Being right will not make up for lost time and lost profits, even if there were a worst-case scenario, it is unlikely investors haven't banked some post-crash profits.
-Carl Icahn's Greatest Hits
Carl Icahn says 'time to be cautious' on U.S. stocks
Reuters/July 10, 2014
"In my mind, it is time to be cautious about the U.S. stock markets...while we are having a great year, I am being selective about the companies I purchase."
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