Market and Meaning is our weekly update on market movements and their meaning for you as an investor. If you have questions or comments beyond what we discuss here, please leave them below or contact us directly. Also, don't forget to take advantage of our Education Center - a great resource for growing as an investor and getting your questions answered. To follow us more closely at Investor in the Family, be sure to subscribe by entering your info in the field to the right side of our website and follow us on Twitter, Facebook, Scutify, and even Pinterest.
News and emotions swirled around the topic of high-frequency trading (HFT) this week. A new book (Flash Boys by Michael Lewis) was released on the topic and made the claim that the stock market is "rigged" by firms practicing HFT. The Justice Department and the FBI are currently investigating HFT to see if any laws are being broken. The idea of HFT firms having some special advantage in the markets that harms individual investors comes as a blow to already low confidence levels among those on main street.
How big of a deal is this really? There is no clear consensus at this point, but it is good for individual investors on main street (as opposed to Wall Street) like ourselves, to remember that greed will always push some people to cross ethical and moral lines. Hopefully, these HFT concerns will prove to be inflated, but we should also not be surprised if they are not. Perhaps HFT has cost us money by causing us to pay more for stocks and selling for less, but we at Investor in the Family still believe investing in stocks is a winning strategy.
The Nasdaq took its biggest one-day hit since August 2011, falling by 2.6% on Friday alone. Social media stocks were hit especially hard with Yelp (NYSE:YELP) and LinkedIn (LNKD) leading the way, dropping 6% and 7% respectively. Both of these stocks are still up big for the year. This could mark a tipping point for the markets as investors begin selling off stocks that have seen big gains lately and shifting their money to more stable value and dividend stocks.
Federal Reserve Chair Janet Yellen made it clear this week that creating jobs will be the highest priority for the Fed. The focus on jobs is not new for the Fed, but highlighting jobs over managing inflation is a slight shift.
What does all of this mean for the investor? Relatively speaking, this week was pretty uneventful. The most notable happening is the way high-flying stocks from last year, such as Facebook (NASDAQ:FB), Tesla (NASDAQ:TSLA), and Netflix (NASDAQ:NFLX) experienced notable sell-offs. Overall, the market seems fragile and the upcoming earnings period could likely prove a catalyst for a lot more selling in stocks. We have been warning of a market correction for a few months now, perhaps the time may be upon us? We continue to hold a large portion of our portfolio in cash (20-40%) as we wait for the market to figure itself out. In the meantime, don't panic if the market does. Any big drops to come will offer great opportunities to buy more stock at sale prices. We still expect the market to continue its upward climb once any near-term hiccup passes.
In site related news, we are excited about some new articles this week for new investors. What would we do if we were getting started with $1000, $5000, or $10,000 today? We wrote articles detailing our moves in each situation. Also, don't let any more time pass before you read our newest resource recommendation.
Gold (NYSEARCA:GLD) closed at $1286.60/oz and Silver (NYSEARCA:SLV) at $19.95/oz. As we have said for weeks, we are still looking for one more big drop, perhaps even gold declining to $1000 and silver as far as $16 before a longer term rally begins. We are waiting for these price drops before we buy anymore gold or silver. Our general time frame is May/June, but that is being held rather loosely. If you own no physical gold or silver, we consider the current prices to be a very good entry point for long-term investment. We want to reiterate that we are talking about owning physical gold and silver coins and bars, not stocks or ETFs. For information on how to buy gold and silver, please see "How To Buy Gold And Silver."
Bitcoin is sitting at around $454.02, now hovering in the $400s for the first time in months. If you have been considering buying Bitcoin, these are some of the lowest prices we have seen since the dramatic price jumps in December of last year. We have purchased some small, fractional amounts as prices have fallen below $500. It is also unclear how much further prices could drop as the current slide has shown little sign of stopping at the moment. Caution and small amounts of money are prudent because however things unfold from here, we continue with our view that owning Bitcoin should be equated with buying a lottery ticket. If it becomes "established," it could skyrocket from here, but it could also fail to catch on and crash to $0. For information on how to buy Bitcoin as well as our views on investing in it, please see our article, "How To Buy Bitcoin." For a brief history of Bitcoin, see Market and Meaning 1/31/14.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: We own gold and silver coins and bars as well as some position in Bitcoin.