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For the last 100 years, investing in America frequently meant doing a little research, then calling your broker to buy. Armed with a modicum of knowledge and data, yesterday's investors would often "set it and forget it" when it came to their financial future in a process euphemistically called "buy and hold."
Problem is, "buy and hold" is a marketing gimmick – not an investment strategy. Buy and manage is the way you want to go in today's complicated world, especially for the next six months.
As quaint as that may seem, it's a vision of the future prompted by new technologies that make this possible.
I'll get to that in a minute.
First, though, let's talk about the elephant in the room.
The single biggest question at hand is whether or not the markets can continue to rise into 2018 on nothing more than the promise of President Trump's tax cuts, infrastructure spending, and other legal reforms intended to spur economic growth.
Many traders argue that the markets have "overpriced" the potential. Constant congressional bickering and the "resist" movement don't make this any easier. A record 44% of investors believe the markets are overvalued.
Money, interestingly enough, doesn't care.
Neither do I.
It doesn't matter whether we're talking about Brexit, ISIS, Russia, Trump, Clinton, or any of a dozen other things people spend too many brain cells on lately.
Trying to predict the unpredictable is an exercise in futility. What's more, the fact that so many people believe the stock market is overvalued is a ginormous contrarian indicator that not only points to vastly underestimated profit potential, but a rally.
We could talk about that till the cows come home and it wouldn't be a wasted discussion. However, that'd be overkill for what we're trying to accomplish today – a high-level overview.
What you really want to understand is the concept of liquidity. Simply put, as long as that's increasing, prices and profits will, too.
It's an equation that we've talked about many times because there are huge piles of money that have to be put to work in everything from individual accounts to pension funds, proprietary trading shops, and even central banks around the world. And that's in a world where people assume the worst!
Imagine what happens if monetary policy actually shifts to stability and strength. The question then becomes how much higher and faster can markets go, not what might cause them to roll over as most investors trying to time the markets "think."
I believe we'll get there later this year if for no other reason that politicians have boxed themselves into a corner. It doesn't matter whether we're talking here in America, across the pond in the Britain or France, a dozen other EU states, or in the Far East. The rise of populist thinking dictates that they have to play the growth card because it's the only one they have left.
More than any other factor, that suggests more money flowing into markets rather than away from them. It won't be in a straight line, of course, but then again, rising markets never are.
So Now What?
Even without tax reform, earnings are forecast to grow by as much as 10% this year. That tells me that traders still have their foot firmly planted on the proverbial gas pedal. Sure we'll have some minor ups and downs, but the path of least resistance is still higher into 2018.
Momentum will be strongest in companies that are:
- In charge of their own destiny rather than that imposed upon them by Washington, and
- Those with large enough liquidity to absorb the hundreds of billions of dollars in fresh capital that's naturally attracted to them.
Think FANG stocks here, but also the large defense contractors, too.
At the same time, remember our trends.
The five most valuable companies in the world today, certainly in U.S. markets, didn't exist 50 years ago.
So, rather than trying to hang on to outmoded thinking like many investors are, what you want to be doing is shifting your thinking to those investments that are changing the very fabric of our society.
About the Author
Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.