Investments

Prepare your big swing for stronger equity market

By Gavin Tolan, Williams Financial Group

With the improving action in stocks, I want to talk about preparing for a run-up in equity prices. But first, a word about having a disciplined approach before you take action.
 
Barry Bonds, the greatest homerun hitter ever to play Major League Baseball (with some help from performance-enhancing drugs he was “unknowingly” taking) described his approach to hitting that I thought contained some real wisdom. Follow me on this one.

He described picturing a small box out in front of home plate that he used as his swing indicator. As the ball approached the plate, it would need to enter this imaginary box to trigger him to swing. Now while this approach is used by other players, Barry Bonds success comes from his ability to picture a smaller box than others and one that is much closer to the plate, leaving him little room for error. So as the ball enters his hitting zone, he can put everything he has into his swing and expect big results with little to go wrong.

Here’s a weird segue from Barry Bonds to Warren Buffet, but the Oracle of Omaha says nearly the same thing when he talks about his success in the financial markets. And coincidently, he uses baseball terminology to illustrate his point. He says he knows his strike zone. He knows what he can hit and he knows what he can’t—and he simply waits for the right opportunity to take his big swing. As most know, Mr. Buffett prefers to take big positions in fewer companies than smaller positions in a bunch of companies. He focuses on his opportunity and then goes big.

With the equity markets strengthening and our economy showing signs of life, don’t just settle for being in the market—be sure you have a focused allocation. U.S. government bonds had a fantastic 2011, but if the equity markets are where the institutional investors are heading, you certainly don’t want to be left behind. Follow the smart money and be deliberate with your investment choices. With our retirement savings window shrinking every day we need to be sure we maximize our opportunities when they enter our hitting zone.

Stock Market Update
It looks like the clouds are clearing for stock prices. As I write this, the DJIA and the NASDAQ are clearly in bull markets, with both indexes sporting a 50-day moving price average above their 200-day. Currently, the S&P 500 Index is within shouting distance of this technical indicator and could be there shortly. Small-cap stocks are also closing in on bull market territory. I expect the growing positive economic news tide will lift most equities.

On the commodities front, oil is in bull mode and prices could make a run toward $130 per barrel, matching highs reached during the Libya unrest last spring. With Syria in real turmoil and Iran causing tensions in oil supply routes, this is one asset class that could benefit from a host of situations.

Growth investors should be positioning their portfolio holdings to take advantage of the renewed interest in riskier assets. The issues with the European debt crisis are now taking a backseat to U.S. corporate earnings and the positive job news here at home.

There is a great discussion on the housing market’s return. As the economy improves, most pundits expect the housing market should firm up. The real problem with housing is the time needed to clear the overwhelming residential inventories and foreclosures off the market. It appears that this will take much longer than first thought. Elsewhere however, multifamily housing is doing well. I think growth investors should take a look at the opportunities in this sector as the single-family housing market searches for a bottom.

Gavin Tolan is a financial consultant with Williams Financial Group in Scottsdale. He has served individual investors throughout the Valley for the past 17 years with investment recommendations, account management and retirement planning. For questions and topic requests, or to set a meeting to review your investment portfolio, email gtolan@williams-financial.com; call 480-212-1100.

Securities offered through WFG Investments Inc., Member FINRA & SIPC, Registered Representative of WFG Investments Inc.

This commentary is not to be considered a recommendation to purchase or sell any securities.