After the amazing ride we had in 2013, many investors have decided to sell a part of their portfolio and cash out their profits. They did this because they are waiting for the next dip to buy again. The problem is that since the small dip of 5% (where those guys were probably still waiting hoping it would hit 10%), the market is surfing on another good year.
We still have a little bit of volatility, but overall, both the Canadian and US markets are set on cruise control to finish over +10%. However, this scenario will happen only if the good news keeps coming in. You know, the type of news that makes me want to buy more stocks…because this is what you should do: keep buying more stocks if you have money parked somewhere.
The P/E Ratio is not that Bad
I agree with you, the easy money is gone for good. There aren’t awesome buying opportunities these days on the market. But it doesn’t mean there aren’t opportunities at all. Both the S&P500 and TSX60 are traded around their historical average values for P/E (16-17). Therefore, most stocks are currently fairly valued.
This also means that if companies keep posting better results, their stocks will continue to rise and follow the same ratio. In fact, this is pretty much what has happened since the beginning of the year. Stocks are following alongside their profits and this is a very good thing for everybody; this means there is not a bubble ready to burst.
Companies Still Have Cash
For the most part, companies have never kept this much in liquid assets as they do nowadays. They have focused on paying down their debts and reducing their costs over the past 5 years and have kept a very tight budget.
What does extra cash mean for investors? One of these five things:
#1 Dividend increases
#2 Stock buybacks
#3 Mergers & Acquisitions
#4 Additional investments in R&D to innovate
#5 The ability to endure a rough stretch (recession)
When I increased my position in Apple (AAPl) a few weeks ago, I bought a company that is sitting on billions. This money is ready to be redistributed to me as an investor through many channels. I would rather buy shares now and keep their dividend in the meantime instead of waiting on the sideline earning 1% from the money market.
The Train is Still Not Steaming
As I’ve previously mentioned, I don’t see the stock market train steaming yet. In the US, there isn’t a big bubble ready to burst. The housing market is growing slowly, consumers’ confidence is rising and employment is getting better. The deleveraging phase is over and consumers have started to buy goods again.
In Canada, the housing market still worries me but it seems that we are landing softly on a zero growth level (eventually) without any crashes. Mind you, banks are well capitalized and it will not affect their balance sheet too much as profits now come various sources apart from mortgages.
What is Expensive Today will be out of Range Later
If you think the market is expensive right now, you might not be in a good position to manage your portfolio. I’ve talked to people who told me the market would burst last year while others told me the same thing about 2012. Still, we are now past the mid-year of 2014 and the stock market continues to grow.
At the moment, there are plenty of good reasons why stocks are going up. I’m not saying that everything is perfect (far from it), but there are enough factors telling me price will keep going up. What do you prefer; not buying right now, missing the dividend to buy in maybe 2-3 years at today’s price after the stock market will eventually drop?
I think I’m better off buying dividend stocks, cashing in the distributions and continue my ride on the market. What would you do if you had $5,000 to invest? Would you buy stocks or keep waiting?
I would buy any large blue chip dividend paying cdn stock, like Enb, BCE, TD, or TRP. Nobody knows if this market will continue for a week or a few years. I would also re-invest the dividends,thereby catching any lower share prices that will eventually come.
I agree that since we do not know when a correction will come (or if) that we should continue to purchase shares in quality companies. There seems to be a decent amount of options as well trading below 17 P/E ratio as well (as well as many stocks way above this mark).
Hey Michel,
this is a wise decision. going with big & solid companies is a good move since they will go through the next crash as smaller stocks may dip and never come back!
Hey Kipp,
There are! keep a look at AAPL for example, results are being published after the market closes today!
cheers,
Mike.
I sold off some Intel last week and now have some cash to invest! I’ll be buying more blue chip dividend stocks and also make sure to rebalance. It’s the perfect time to make sure our asset allocation is on target.
I think keeping investing is the way to go because you never know where the market is going. If you’re holding off now, you’ll likely hold off when the market is low too. It’s easier for most people to just keep investing when you have extra cash.