Monday, April 2, 2012

Sell in May and Go Away?

An old say in the investment business is "Sell in May and go away". The reason is that the first quarter of the year tends to be bullish in stocks and often times less so for the rest of the year. What I like about Biderman's business over at TrimTabs in Marin, CA is that he follows cash flows into and out of investments. This is important because at any one time there's essentially a generally fixed supply of investments so studying the demand side can give important insights into where the market is headed. Biderman has previously pointed out that insider buying (generally CEO's and shareholder with greater than 5% ownership in companies) has been high the last several months but have been dropping off. These insiders must report intended sales to the SEC which is made public, giving us a window to what the insiders are thinking about the prospects of their own companies.

The following video is from 3/22/2012. The entire 3 minutes 35 seconds is worth listening to but pay especial attention around  2:40.

I especially love Biderman's exasperation with what he sees out there. The guy cracks me up and I'd love to meet him one day.

Now take a look at his most recent video keeping the equity outlook in mind:

So what's the point? Well, most of us hold stocks either as part of our 401k's, IRA's or other type of retirement plan. Since most of us do not have access to gold through these funds we have little choice but to invest in equities given that neither cash nor bonds are likely to protect us from inflation. Equities (stocks) in a normal environment do provide some inflation protection but what percent to invest has been muddied by Fed intervention that has juiced the market.

The point is, we simply cannot know how long the Fed will support the equity markets and without their support the Dow may very well revisit the February 2009 lows around 7,000 (Its at 13,264 today). Given that this is an election year the Fed (Which has a strong aversion to being considered a negative in politics since it was accused of losing the election for Bush Sr in 1994) is likely to continue to support the market in its belief that strong markets are needed to support the consumer confidence needed to get the economy moving again on a path to a sustainable recovery.

As a result, we are unlikely to see a large, sharp correction in the market but be watchful. It may make sense to reduce your equity holdings in the stock market after this month. You may very well have an opportunity to buy again at a lower price.

I hope readers find this useful. I realize that this blog has been very gold oriented and I'm wanting to broaden out a bit rather than constantly hammering the same theme.

Best of luck! Happy investing.

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