"I'm ready to buy now, but should I wait for a pullback?"
That tweet, one of many that I received today, asks an incredibly tough question.
That's because it's a question that can only be answered by discipline -- the discipline of buying when the opportunity was there, before the French election, not after.
I have strict rules, as you know. One of them is that chasing is a sin. The corollary to that is a recognition that you missed is. You weren't there. You weren't buying at the right time.
So it is best to just say, "Okay, that train left the station, I have to wait for the next one."
Why is this so important, if we think over time the market will go higher, not lower? Simple, the natural reflex is to buy when everyone else is buying -- but, sadly, the same reflex is there on the downside: to sell when everyone else is selling.
Now, it's hard right now to think that anything could take the market down. However, again, that's something everyone knows. They just don't believe it because of the euphoria.
Still I am urging you to wait, because any attempt to jump on is going to cause you tremendous remorse if the market does come in.
I know that this advice is rarely heeded. So let me put it a different way. If you want to buy an index fund after a run like this, put only a quarter of a percent in. I favor low-cost index funds. However, so often you already have your money with a brokerage firm, so you have to scrutinize their offerings for fees. Warren Buffett, in his letter, says that Vanguard is his favorite. So that's good enough for me.
Otherwise, what you want to do, in terms of individual stocks, is to pick those of companies that have reported superior earnings already. That way, if the stock market comes down on fears of a government shutdown or on some news out of North Korea or an errant tweet that might derail some sort of Congressional compromise, you are protected by good fundamentals.
So you would focus on a Honeywell (HON) with excellent numbers, or a Stanley Black & Decker (SWK) or one of the banks, all of which are cheap. I am partial to Citigroup (C) , PNC (PNC) and KeyCorp (KEY) , because they had such strong quarters, and Wells Fargo (WFC) , because of both insider buying and its dramatically reduced valuation. Visa (V) and Lam Research (LRCX) reported remarkable quarters, as did Snap-On (SNA) and CSX (CSX) , which printed sharply better-than-expected numbers. Any of these can work as places to go if you simply can't resist and insist on buying.
I know it seems like I am being a cruel task master. I know that if the market continues to run, you will say that I caused you to miss it. But I have to come back and say, "Wait a second, I said buy ahead of the elections -- that they wouldn't be that important either way." I didn't scare monger, I didn't urge you to cut and run or say that it is the great unraveling.
That's when you could be aggressive.
Now? You have to say you blew it, and the penalty for that transgression? You can only go in small for index, or for stocks -- and pick the stocks with the best fundamentals that are already known, and no others, because they could be based on quicksand that may not be able to hold your buy order's weight.
