I spent the majority of last week in Aspen, Colorado, and if you think you are rich, you need to spend some time in Aspen to gain a little perspective.
As I passed by the Aspen Airport on my way to the golf course, I couldn't help but notice the rows of private jets lined up near the hangers. My son and I played a round at the Aspen Golf Club (after 3pm it only cost us $70 each for 9 holes), and after we finished, I struck up a conversation with the starter.
I asked the starter if there were any other courses close to the Aspen course, and he said yes, and pointed just over my shoulder,and said "Maroon Creek". I expressed interest in playing a round at "Maroon Creek", and then he proceeded to tell me that the greens fees were a little more expensive. Of course, I asked, "how expensive". He said, "a $750,000 initiation fee, and $50,000 a year in annual dues". Talk about bringing you back down to earth. I quickly learned that there is "us" and "them". The question that remains is how do we become one of "them". Here's what I found out.
One of my friends whose a "them" made every penny of his wealth in the stock market. I know his background well as he grew up the son of a factory worker in a rural part of the country. As I quizzed him about how he made his money in the stock market. Of course, he snickered. He said, " do you know what the biggest mistake is that most investors make?" "They always feel like they have to be doing something, they just can't sit still and wait for the perfect opportunity".
This made perfect sense. And being a Registered Investment Advisor and broker for over 16 years, he was absolutely right. As a matter of fact, during the NASDAQ bubble of 1999-2000, I had one client tell me that his neighbor made 40% in his account, and if I couldn't make him 40% annually, he was going to transfer his account. When I inquired about his neighbors stock holdings, he spit out stocks like JDS Uniphase, Nortel, Lucent, Conexant, and a host of other -95% downers. I told him I would not invest his assets like his neighbors, and he transferred his account.
As is the case of most "bubble mania's", experts are born by the minute. PT Barnum said it better, There's a sucker born every minute. In fact, one of my old coaching mentors once told me that people are basically "selfish, egotistical, and full of crap" (especially when they're making money in the midst of a bubble).
Speaking of bubbles, I read some startling information on the current real estate (bubble) situation from a guy that actually has a clue at Merrill Lynch. If you want to see the entire article, go to the July 25th issue of Barron's and turn to page 6. Check this out.
* "Real Estate has accounted for 70% of the rise in household net worth since 2001".
* "Over 40% of private sector jobs sine 2001 have been housing related".
* "An estimated 42% of first time buyers made no down payment on their home purchases last year".
* "Adjustable Rate Mortgages (ARM's) now account for over 50% of new mortgage originations". (This is a classic case of buyers thinking they're experts, and now that short rates have risen over 200 basis points, they are seeing their monthly payments skyrocket).
* "60% of new mortgage apps in California have been interest-only or ARM's". (Keeping up with the Joneses is a fools game. These people can follow the Joneses to bankruptcy court).
* "The National Association of Realtors data showed 23% of home sales were to investors (speculators)".
So you have it. I have to go back to the ole investment adage that has never gone out of style "sell when others are buying, buy when others are selling". Knowing when to sell is actually more important than knowing when to buy. That being said, here's what I think the stock market will do over the next 6 months.
We will have a mild sell-off through the month of August and maybe into September. Late August, early September start buying. We will probably have a big rally that could take the Dow Jones Industrials up to the 10,900 level, and euphoria could take it up to the 11,000-11,400 level. The NASDAQ could see 2250-2300. If I see these levels in the November-December timeframe, I will be selling, grabbing a life jacket and raft, and abandoning ship. If not, I will wait until the early part of 2006. What then?
I will do nothing and wait. I'll leave the mania part to those who are good at it.
