Allow me to add to a previous article, "The Dog days of Contrarian Investing," with a thought regarding the difference between motion and movement.
If Bill Miller’s comment noted in the article is correct (that the equity market is “remarkably serially correlated”), then perhaps it would behoove investors to appreciate the forces that swing equity prices to and fro thereby producing what might seem to some as a range bound market. Big up, big down, no net change.
Yet, in the midst of the seemingly manic/depressive mode of equity prices, certain clearly defined trends are well-established and, given the points made in the contrarian investing article, are likely to enable an investor to capitalize on the market's atmospherics.
Investment Strategy Implications
There’s money to be made in exploiting the behavior of the momentum lemmings. And, as the markets enter their final weeks of 2007, that behavior is very likely to be in the arena of the year-to-date winners, like Tech, especially large cap Tech (XLK). Bottom line: The mega trend is intact. A top may be in the process of forming, but it will take a lot more than the angst and pain experienced by investors stuck in the Financials sector to put an end to the very mature bull.
Key point to remember: As long as there are trillions of actively managed dollars desperately seeking alpha along with massive amounts of global liquidity, supportive valuation levels, and a solid global growth story, nuggets of gold can be found in sectors that benefit from the current circumstances. It’s like knowing the difference between motion and movement.