I laugh at some of the warnings people issue during bull market runs. While I think Seeking Alpha contributor Karl Denninger writes fantastic articles on a consistent basis, he tossed out some doom and gloom on Thursday:
... this is a rally that is happening on increasingly-narrow participation. In this case, all Apple (NASDAQ:AAPL), all the time.
But Apple will fail. They always do when they take these positions of leadership. It is simply a matter of when, not if. The current "golden boy" will make a mistake, and when it does that monstrous percentage will cut on the downside just as it boosts on the upside ...
The same thing is true in the Dow, with IBM (NYSE:IBM) being the power mover there ...
There's a decent shot that this move has more legs in it, just as it did in late 2007 and before that, in late 1999 and early 2000.
But there's a very high correlation between these sorts of rotational moves, which have shown up before both major tops in the last 20 years, and that event down the road.
I'm not really sure why this matters to long-term investors. I guess it could mean something to day traders, but the good ones know how to get short fast. If you're about to tell your boss off tomorrow and tap your IRA, it's probably relevant to you as well. But, I hope you're positioned, at 60 years old or thereabouts, in a way that a downturn would not wipe you out.
I prefer to look at the positive side of the equation, which, in this case, is the more meaningful and useful one.
The market will pull back. It will correct. It will crash. I don't know when, but it will happen, just like an earthquake is going to rock California sooner or later. (Hopefully later). This is natural. It's good for the market to do these things from time to time. And, while I am no geologist, I think benefits exist in association with the earth moving. So, yeah, the market looks like it should dive any day now. Just don't make a mountain out of a molehill.
I will not bore you with what you already know, but each time the market has tanked it has ended up much higher shortly thereafter. Last year, we witnessed quite a bit of volatility. Triple-digit drops in the Dow followed by considerable rebounds. That process repeated itself several times over the course of a few crazy weeks. If I recall correctly, AAPL lead the ensuing rallies on practically every move up.
Therefore, the answer is not to beat up on AAPL or tell people to beware. That much is obvious. Instead, consider doing what I will do, have some cash at your disposal to pick up bargains such as AAPL and IBM, if indeed their "failure" to lead sparks the pending move down.
I love to dollar cost average. And the stocks I do this with are, by and large, companies that produce massive revenues, considerable profits and rising dividends. When the market tanks, I shift a majority of that week's allocation to the stocks that got hardest hit. Why not? I am not buying these companies for their stock price today. I am buying them for the companies they are today, the companies they will creatively morph into tomorrow and for the stock price they'll sport in 5, 10, 15, 20 years. If the market never skunked out, I would feel robbed of opportunity.
When all heck breaks loose, I hope to have enough cash to get into some stocks that I missed on the hard run up. I would love to see Ralph Lauren (NYSE:RL) and Chipotle Mexican Grill (NYSE:CMG) get taken down in a pullback, crash or correction. Companies facing near-term headwinds, such as Amazon.com (NASDAQ:AMZN) become incredible bargains when the sky falls. I would lick my chops to buy those three companies and probably 15 to 20 others after a 10 to 20% haircut or more.
Additional disclosure: I may initiate a long position in AMZN, CMG or RL if and when the market pulls back, corrects or crashes.