The human psyche has been wired for action, not stagnation. Despite the virtues of sitting still, the external environment challenges us to do anything but, especially when it comes to money and financial gain. Twenty-four hours a day, seven days a week, 365 days a year, Las Vegas has an open poker table, blackjack table, slot machines, and hundreds of other games of chance that offer the chance to cash in. Today's social networks enable people to stay engaged all day every day. Twitter now makes it possible to not only follow your friends but also follow your favorite celebrities and stay involved.
There's certainly nothing wrong with being involved in all of the above, but it can dangerous to overdose on them. French mathematician Blaise Pascal said it best when he said, "All of humanity's problems stem from man's inability to sit quietly in a room alone." I like to think that in the stock market, a lot of bad investment decisions arise when market participants feel like they always have to be a part of the action. Sometimes it is wise and prudent to sit still and just watch things from the sidelines.
What investors often forget is that the act of not investing is actually an active investment decision, which is why doing nothing while the market is going up is so hard for many people. And doing nothing is only getting harder with each new headline. In the past two weeks alone, I have read more than a dozen articles about how stocks are set to take off and investors would be remiss to sit on the sidelines. The biggest catalyst most sources cite is the eventual shift from bonds into stocks. That's certainly a fair argument, but stock market investing is ultimately a zero-sum proposition. When one investor is buying, another investor is selling. The purchaser feels he's getting a great deal while the seller also feels he's selling at an attractive price. Only one person can ultimately be right.
I would not call today's market a bubble, however. Banks are getting stronger, consumers are improving their debt profiles, and housing is going in the right direction. But the market is up more than 120% in four years, making this bull run one of the strongest in history. It's simply time to be careful. Buy what is cheap, sell what is dear and do nothing in between. When there is nothing to buy, buy nothing.
Dell (DELL), my top pick for 2013, looks like it won't make it to the spring as a public company. The view is that a $14 share price will be adequate to take Dell private. Dell's largest shareholders may disagree but time will tell. I wouldn't be a buyer here unless you want to play the arbitrage game. By way of irony, what perhaps may be the most intriguing option today is Apple (AAPL). Shares are down nearly 30% vs. a gain of nearly 10% for the S&P 500 over the past six months. Other names, like Weight Watchers (WTW), True Religion (TRLG), and Potash (POT), are trading well below historical highs and offer unique prospects for value creation.
As the market continues to rise, investors need to be more selective. And remember that selecting not to invest is also an investment decision.