Since the downturn bottomed out in 2009, investors have had it easy from a strategy standpoint: since the economy is bound to go up sometime, just jump in when you feel like it.
But with the economic recovery now beginning to accelerate, investment strategy is starting to be more challenging.
“Anticipating prosperity is very good for stock markets,” says Biff Robillard, president and co-founder of Bannerstone Capital Management in Deephaven. “The arrival of prosperity for stock markets is trickier.”
Robillard, a participant in the annual Star Tribune Investors Roundtable, said investors now need to adjust for what prosperity means and look for a whole new set of signals. “A good investor will begin to consider that we are out of the woods now,” he said.
Rising consumer confidence will help define what successful economic growth will look like over the next year, Robillard said. The Fed’s decision earlier this month to begin to end its bond-buying stimulus program, he added, is something “the country should be very pleased with.”
He predicted the S&P 500 index will close at 1,910 at the end of 2014, up from 1,841 yesterday.
Robillard said that the realization that the market has gone through a full down-and-up cycle may encourage investors to take more money off the table and put it into play.
“I think it can be a powerful condition when investors slowly realize they made it,” he said. “They got through the hard part, and I think that’s going to be a very important thing that will eventually support, if we’re in a secular bull market, it could support, eventually, higher equity prices after lots of adjustments and tapers.”
Then comes the inevitable challenge of worrying about the next downturn, and avoiding the temptation to worry too much about it.
Robillard said he often repeats the famous admonition of former Fidelity Investments money manager Peter Lynch: “More money has been lost anticipating the next 10 percent correction than has ever been lost in the inevitable correction.”