Hi All,
When a market is overvalued, it could remain that way for many years but that does not change the fact that it is a dangerous place to invest. This bull market is over 6 years old and has gone without a 10%+ correction for that long.
Most stocks of good companies have more than tripled over the past few years. In the market, it is easier to make money than recover from a big loss. In 2014, Intel was the Dow 30’s biggest gainer but if you purchased Intel in the year 2000, you are still looking at a 50% loss-even after 15 years!
The best strategy for now is to hold 50% cash and invest the rest wisely. If there is a big correction, using the 50% cash, we would be able to find good bargains. However over the past few years, there has been a sector rotation. Gold miner stocks has been on a downward spiral since April 2011; even though no one knows for sure it could have hit a recent bottom. In 2008, Gold miners ETF (GDX) hit a low of $17.80 which it did again ($17.20) in October 2014. When I wrote the last newsletter on 12/31/14, we had a loss of 65% on Barrick Gold (ABX) but as I expected gold started rallying at the end of 2014 and our losses are down to 27% at the current time. I believe that this is a long term bullish period for gold.
The price of gold itself might go from $1200 (approx.) to $1500 by 1/1/17. European Central Bank is following in the footsteps of the US Federal Reserve and getting in to quantitative easing to boost the European economy and therefore expecting the German Index to move up by 28% is quite reasonable. Recently there has been a lot of doubt about Greece but now it seems like that the status quo would remain. The euro weakening is good for European exports and another factor that would help Europe is cheap gasoline prices. For the past year, GE has been trading between 24 and 27 so if GE hits 24 again, it would be a great idea to purchase in the money call option. If the price drops below 24, then it would be a good idea to sell the option-even at a loss. I do not recommend trying to short at 27 as the long term potential is great for GE. Oil too could be bottoming out and even though I did not list it under the ‘watch for future purchases’ section, ETF with the symbol OIL (this is on oil and not on oil companies) would be a good place to bottom fish; hoping to add more if the price keeps falling. In this market, one needs to keep at least 50% cash and buy very selectively.
I wish you all the best!