Since the post election lows in November, the Dow Jones Industrial Average has rallied 2,300 points, from roughly 12,500 to the 14,800. During that same time period, the S&P 500 has advanced from approximately 1,350 to 1,590, a gain of 240 points. You don't have to be a mathematician to understand there are big gains, and if Sir John Templeton is right, we still have a ways to go in the secular bull market that began in March of 2009.
If you've been following the stock market closely, you're well aware that this has been a risk-off, or defensive rally. In this flight to safety, the dividend payers have taken it to new heights. Except for cash, I'm primarily invested in technology stocks. Although I've benefited from the overall price appreciation in the indexes, I would have made more money in an S&P 500 index fund like (SPY), or something much more concentrated like the Dow 30 tracker (DIA).
The primary reasons for the under performance is twofold. First, I'm in tech stocks which have lagged the market as a whole. Secondly, I run a concentrated portfolio, and one of my positions was a poor performer. That underachiever was Velti (VELT), a security I liquidated some time ago. With an undiversified, concentrated portfolio, you tend to make money when your focus sector is in vogue. Even with significant gains in Facebook (FB) and Synchronoss Technologies (SNCR), I still didn't perform with the major market averages.
Markets just don't go straight up. Periods of consolidations and corrections ensue. My previous post discussed some stocks I have limit positions in, and although the market has rallied in the three weeks since that writing, all of those equities have declined in price. The stocks that I've targeted for possible inclusion in the portfolio are Broadsoft (BSFT), Ruckus Wireless (RKUS), Fusion-io (FIO) and Millennial Media (MM).
I refuse to chase any them, and my purchasing style can be described as bottom fishing. The trigger finger gets itchy as these stocks go down, and the market goes up. It's only human nature to want to get in on what may be depressed prices, especially when many market pundits exclaim we are going up another 15% or so by the end of the year. However, the Spring swoon may be coming sooner than you think with earnings season upon us.
NFL draft guru Mel Kiper Jr. on ESPN radio said it was his philosophy never to select a running back in the first round. His contention is that you can get a very good running back in the later rounds for less money. I utilize a variation of this strategy in buying up and coming technology companies. Like Peter Lynch instructed, don't buy the IPO right out of the chute, these stocks are reserved for institutional investors. Wait a few quarters and see if the stock comes back down to reasonable levels.
I believe that we are long overdue for a 5%-7% market re-calibration. Not a crash, just a run of the mill correction. With that correction will be much more advantageous prices for investors, myself included. With the nose bleed Betas on the equities I'm stalking, and an already weak Q1 projected for technology stocks, I may be able to get some discounts.
Another security I am considering making a bid for is Palo Alto Networks (PANW). It's very expensive and needs to drop down to its IPO price or below until I would consider adding it to the portfolio. Palo Alto Networks supposedly has disruptive technology, and maybe it does, but so does Fusion-io and that dropped 50% this year. Like they used to say in the 90's, "It's all about the Benjamins.". You need to be making consistent sales to justify the growth, and right now telecom service providers and large corporations just aren't spending with reckless abandon.