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What worked in 2013 probably won’t in 2014

It’s said that at the start of a new conflict the Generals go to battle using old tactics from the previous war.  Investors are often guilty of the same sin.

Social media, Biotech, IPOs, dividend paying stocks- all high fliers in 2013.  As was much of the market.  At the other extreme, commodities were mostly down, especially precious metals.

Should an investor jump on the bandwagon of last year’s winners or play the contrarian by investing in a loser like gold?  An investor should be cautious.

I wouldn’t be surprised if we’re at a market top and see a 10% or better correction in the first quarter.  Irrational exuberance is in the air, fueled by unending global quantitative easing.  Over the past few quarters retail investors have been exiting bond funds and fearlessly buying stocks.  Earnings are still good, but valuations are getting high.  A large majority of advisory pundits are extremely bullish.  These are all signs for concern.  Taking poetic license with a famous Margaret Thatcher quote:  sooner or later you run out of people’s money.

That doesn’t mean to liquidate everything and bury your money in the backyard.   I’m not suggesting an economic collapse, far from it.  The market just needs to catch its breath.  The rally could even continue unabated throughout 2014.   Corporations are still flush with cash and interest rates are artificially low… that could mean more mergers, buybacks, higher yields, and special dividends.  Balance sheet shenanigans are still in vogue.

In my opinion, the best indicator of future performance is current price and volume movement.  Watch for anomalies, momentum and position rotation.

2013 was a fabulous year for US equities.  The gild may or may not carryover to 2014.

Invest with caution.


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