Wade Slome | Nov 04, 2013 12:24AM ET
In the movie the Hunt for Red October, Sean Connery plays Marko Ramius, a Soviet Union submarine commander, who wants to defect to the United States. Jack Ryan, played by Alec Baldwin, plays a CIA analyst who attempts to prevent Ramius’ stealthy submarine from attacking American soil.
October has historically been viewed as a bloody period in the stock market, given the multiple October crashes occurring in 1929, 1987, and 2008. However, the large number of bears and skeptics who were on a hunt for red (losing) October were rudely surprised last month. Rather than plunging in value, stocks ascended to new record green heights. Specifically, the S&P 500 index rose +4.5% in October, bringing 2013′s total climb to +23.2% (NASDAQ +29.8% for the year).
While the Soviet “Cold War” may have ended in the early 1990s, when it comes to retirement and financial assets, the emotional war for a prosperous future seems to never end for those without an investment plan.
How Can it Be?!
As the financial markets have recently grinded to new all-time record highs, I still stumble across a vast number of skeptics and doubters. These cynical cats make comments and ask questions like:
These are but a few of the widespread concerns, and understandably so because fear, uncertainty, and doubt are exactly what media outlets shovel in the faces of the masses. However, unlike humans, the financial markets do not watch TV or listen to the radio. As famed investor Benjamin Graham notes, “In the short run, the market is a voting machine but in the long run it is a weighing machine.” Or in other words, emotions can rule the short-term, but positive or negative fundamentals will rule the day over the long-term.
While the concerns listed above may have some validity, here are some alternative perspectives to help explain why patient investors have been rewarded:
Record Profit
Source: Ed Yardeni (Dr. Ed’s Blog)
This isn’t the first or last time I’ve focused on earnings data. At the end of the day, my investment philosophy that “prices follow earnings” aligns with legend Peter Lynch’s views:
“People may bet on hourly wiggles of the market but it’s the earnings that waggle the wiggle long term.”
Stocks are Cheap (Not Expensive)
Despite the massive run-up in prices, stocks are cheap. There are some metrics that show equity prices as fairly valued, but there is plenty of data to support why stocks have and continue to be loved.
If that’s not enough evidence for you, take a peek at strategist Don Hays’s “Rule of Twenty” Contact page .
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