Tuesday, March 8, 2011

The average guy on the street is my contrarian indicator

I am sure quite a few people reading this blog got their butt handed to them during the market crash that took the S&P 500 index all the way down to 666 back in 2008. The market has rallied over 100% since this time due to the inevitable dead cat bounce and the various central banks creating trillions of dollars of liquidity. As QE2 ends in June I have been lightening up positions as all markets both stocks and commodities look very extended. That is not say that they cannot continue higher. However my confidence is no buoyed up that I am getting out at the right time when I read this article today:

As a historic bull market reaches its second birthday, everyday investors are piling back into stocks, finally ready for more risk and hoping the rally has further to go.

Little-guy investors appear to be on board. Since the beginning of the year, investors have put $24.2 billion into U.S. stock mutual funds, according to the Investment Company Institute. They withdrew $96.7 billion in 2010.

“It didn’t feel right to be back in until now,” says Richard Dukas, who heads a public relations firm in New York City. “I still don’t want to put all my money in the market, but I believe we’ve come through the worst of it.”
It is interesting to note that as the little guy gets back in after a 100% gain in the market big time hedge fund managers are shutting down funds and returning money back to partners because they cannot find values in this market. In addition company insiders continue to sell their own stock as opposed to buying them. As usual the people with the least amount of information are late to the party and are now buying. I sold off quite a bit of my portfolio recently and I expect I will be able to buy quite a few bargains after we have a big correction. The time to buy of course was when the most fear was in the market back at 666 on the S&P not after a 100% run. One of my main rules for speculating or investing; you are either a contrarian or a victim. Maybe these johnny come lately will be right but after a 100% run but I suspect there is more risk to the downside than missing any upside.

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