small caps ran out of steam , page-2

re: small caps running out of steam? Sniffer, the question you pose of “do we buy more when others are selling or is it a time to get out of the market altogether and wait on any increase in holdings now till next year”, is a good old perennial.

It is true that the spec end of the market will only make people money during those relatively short bursts of activity when there is liquidity. These come along infrequently and in my experience follow a ‘random walk’ pattern. On the other hand, the best time to buy spec stocks is when they are unloved.

My own stratagem is to take a long term view, identify stocks with excellent prospects on a risk/reward basis, and take biggish positions in those stocks (hoping to influence managements in lean times, if need be, to protect my interest).

I always ‘sell into strength’ when the markets boom, and endeavour to become free-carried in my holdings.

That said, and although things have quietened off of late, I do not believe the game for this cycle is over just yet.

The American bourse is experiencing a pull-back on the back of the bad news that the underlying economy is actually picking up rather strongly. If we have to have ‘bad news’, THAT is certainly the sort I prefer. Besides, this year is an election year in the US, which is usually positive for the markets. If Mr Greenspan does need to get a rate rise out of his system, it will likely occur sooner than later, so that the election period is not influenced by its occurrence. Consider too that the rate rise is being ‘built-in’ to share valuations even as we speak.

The Japanese economy appears to be showing its first real signs of life in decades, while China continues to grow at an astonishing rate.

Only a couple of months ago, all the pundits were predicting a ‘super-cycle’ in the metals prices to peak later next year – and I can’t really see anything much that has changed since then. The metals have all pulled back a bit as one would expect in an overheated market, and our spec market has cooled too – as it invariably does at this time of year.

But as I say, I don’t think this is the end just yet.