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This is a personal note about the market and various investor thoughts.
I'll call it the 'Stan' indicator of market sentiment or SIMS <G>.
Background..
I have a friend, locally, who has been the poster boy for the bull market.
He was born into a family in South Central LA. For those of you who don't
know, that's the pits. I won't go into details of his youth, but he managed
to succeed in life, no help to family and friends. By the time he was 40,
he owned his home outright here (with an ocean view even). Married a cute
blond and has an 8 year old, who is my son's best friend (or second best, if
you ask my son <G>). In fact, that's how I originally met Stan. Through
his wife while playing Mr. Mom with my 18 month old. So I've known Stan for
6 1/2 years.
Stan's Market Philosophy
Stan, based on his background, is not a spender. His wife is perfect for
him, because she can grind down the best of them <ggg>. Anyway, Stan is a
sales rep. Respected and liked in his field, I'm told. He currently makes
about $150k a year and saves $4-5k a month. And don't ask me how? We make
a lot more and save a lot less. <G>
For as long as I've know Stan, he has been dumping all excess cash into
various funds. He stayed away from any funds with international exposures,
probably based upon his conservative bent. When we discussed the various
ups and downs of the market, the two of us are on different planets. His
response was, always, "so the market dropped." "I'm in it for the long pull
and in the next 18 years or so, it'll do OK." He felt that the last few
years were a little extreme, but that he would be able to maintain a 10% per
year growth. In my mind, Stan is the typical, modern investor with their
401k investments.
Last week, everything changed! Stan has decided to forgo putting any more
money into his various funds. He has started investing all of his new
savings in CD's and Bonds. Now, you have to understand that he is not
pulling any money out of his mutual funds, just not adding anything new.
For Stan, this is a MAJOR paradigm shift. And while he refuses to look at
historical facts in the market, when annual return was substantially less
than 10% a year, he has at least started to protect himself and not keep all
of his eggs in one basket.
I sort of refer to this as the SIMS. If he represents the average American,
then we can look for Fund inflows to decrease while Bond funds and banks
should have increased inflows. Meaning more money available for lending and
no where to go.
I wonder how long it'll take Stan to realize that all of his current fund
investments are exposed to risk? My dad told me a year ago, that the
NASDAQ will drop 50% before the public will figure out they're in a bear
market. I guess I'll keep watching Stan!
Regards
Guy
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