If you are an outdoor person as I am, you know and recognize that nature is full of reliable patterns. The sun rises and sets at predictable times. The moon has it recurring phases. Tides wash in and out of bays, rivers, and oceans daily at predetermined times. Great flocks of birds migrate by nature’s signals which have told them to go or to come for lifetimes. It is these patterns, these recurring events, that for an outdoorsman or woman aid in navigation, understanding of nature, hunting, or just the pure enjoyment of the great grandeur that nature provides.
Well sir, what about investments? Are there reliable, unmistakable, predetermined patterns that we can see in order to make the right investment decisions? Is there a published tide table or lunar phase for buying and selling stocks at the right time? Can you look for a specific signal that says the time to change strategies and move this way versus that?
Not to disappoint you, but to confirm for you that “NO” there are no absolute signals that tell you to buy more, sell this, or add to that. If you meet someone that suggests such, “RUN!”
However, there are indicators that we watch. There are markers of such that suggest that things are changing. The skill is to recognize these markers, ask enough questions, measure the ongoing and ever coming data, and then work with enough data that one feels comfortable in making those tactical changes. Remember, the skill is to see and understand the changes and with the correct understanding of the risk and rewards, reposition the correct asset levels to benefit from the tactical change.
One such change is possibly beginning now. We are not ready to call for a move, but let me give you an early heads up on what we are seeing. Below is a table from Bloomberg showing the Total Returns of indexes year to date, ending 1/27/2012. See if you see the change we do.
To save you time, but to let you follow with us, for the time period listed in the chart, the growth oriented indexes outperformed the value oriented indexes. Materials and Industrials outperformed HealthCare, Energy, and Staples. All the broad indexes (S&P 500, Russell, and NASDAQ), outperformed the Dow Jones Industrial Average. Mid-caps and Small-caps outperformed Large-caps.
What does this mean? For now we are still waiting on more pieces of information before we say. But, if Europe is settling down, unemployment is slowly getting better, housing sales begin to appear, and there is not just some HUGH unpredictable world event which the market must deal with, then just possibly, we are moving into a phase where we need to rebuild those positions that we moved away from over this last year.
Understand twenty-seven days does not set the direction for the year. There are still several big thunderheads out there we must watch, but let’s watch closely because the tide could be rising and we all want our portfolios to rise with a good tide in 2012. We will keep watching and will let you know sooner rather than later.