Those who are cautious on the markets are having trouble finding comfortable entry points these days, especially with economic data consistently coming in a bit better than expected. In this sort of market environment, long-term investors must stick to a discipline of putting money to work during the occasional pullbacks. This requires a bit of patience and self-control (more on these factors below).
Looking at today’s tape, earnings results boosted names like Joy Global (JOY) and DineEquity (DIN), which actually closed flat after an early ramp on news the company re-initiated its dividend payout. Target (TGT) shares ended lower despite the company’s earnings beat. Elsewhere, Wall Street analyst upgrades pushed shares of J.P. Morgan (JPM) and Eaton Corp (ETN) higher, with ETN also announcing a dividend hike.
Apple (AAPL) shares ended lower as the company held its annual shareholder meeting. Some traders had been hoping for any sort of good news in the form of a dividend hike, stock split, or share buyback, but the company did not make any specific announcement outside of telling shareholders they are appear of the company’s cash hoard and will be continuing conversations on how best to put it to use. The stock has been one of the absolute worst S&P 500 performers of the past six months, down over 33% in that time frame.
The “Simon Says” Approach
When it comes to investing, most people tend to look anywhere and everywhere for investment/trading ideas. It can be earnings results, analyst upgrades, M&A deals/rumors, financial media guests sharing ideas on TV, and so on. The thing that often sinks investors, particularly active investors, is their unrealistic expectations of how quickly they can see profitable returns. A few weeks back when news of the H.J. Heinz (HNZ) takeover deal broke, analysts were quick to put out reports on which of Heinz’s peers could be ripe for a takeover next. The financial media picked up on this and hence came the food/consumer sector analyst guests with their predictions. In the same trading session, we saw these companies pop as if their takeovers were going to be announced after the bell or within the next few days. The end result was most of those shares pulled right back, and those who were foaming at the mouth to get in on the action were hit with quick losses.
Look at today’s action and you see analyst price target increases spiking names such as Google (GOOG), Priceline (PCLN), and LinkedIn (LNKD). The buying frenzy doesn’t always take place, but when it does, the risk of capital loss only intensifies. There is a reason the success rate in trading full-time is so low. Human nature often dictates why the “house” always wins. The investing we talk about rarely harps on any one particular event, but usually a cumulative effect of matching good businesses with attractive dividend yields and entry points. This process requires patience, which isn’t often a character trait that active market watchers display.
Thanks for reading everybody. I’ll see you tomorrow!
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