Caution: Investors Are Buying Stocks For All The Wrong Reasons

If you’ve been watching the business networks or reading the financial press lately, you’ve been exposed to the three most popular reasons to buy stocks right now…

1. The Fed wants the stock market to go higher… and you can’t fight the Fed.

2. Institutional money managers are underperforming. So they’ll be forced to put their large cash hoards to work in an effort to play “catch-up.”

[ad#Google Adsense 336×280-IA]3. It’s an election year.

So the current administration is motivated to do whatever it can to promote a higher stock market.

These are all valid reasons to be bullish.

I even agree with them to some small extent… But they are manufactured reasons.

They’re temporary.

And to a large degree, they’re likely already discounted by the stock market.

If you’re bullish and looking for reasons to further support that view, have at it. These reasons are the best ones you’ll get at this point.

But you may want to notice what’s missing from this list. Remember the good old days when investors used to buy stocks because they were cheap and represented a good value? Or when the corporate earnings and the economy were growing? How about buying a stock because we believed in the long-term prospects of the company?

Those reasons don’t seem to exist anymore… Or if they do, they’re secondary considerations.

As a trader, it doesn’t matter much to me what criteria folks use to rationalize buying or selling stocks. But as someone interested in the long-term health of the financial markets, this change of focus is troubling.

Investing isn’t about earning a piece of corporate profits anymore. It isn’t about performing diligent research and making sure we buy good companies at fair prices. It’s about front-running the actions and comments of a government official or a Wall Street fat cat.

We must get in before Fed Chairman Ben Bernanke prints more money, we’re warned. Or before Mario Draghi repeats the same mantra that has sent European markets higher so many times this year. Or before the institutions put all that sideline cash to work. Or because our elected officials need a higher stock market to make people feel good before Election Day.

You must buy stocks now for all these reasons, we are told… But they’re not the right reasons.

Best regards and good trading,

Jeff Clark


Source: The Growth Stock Wire