Expect, But Don't Fear, a Market Pullback

The market has risen in 12 of the last 15 weeks. Because of the strong market, many people are finally turning bullish. People are beginning to notice. January was the first month since last April in which inflows to stock funds exceeded withdrawals.

One of the easiest things to do when forecasting is merely to extend into the future the current trend in a straight-line fashion. Easy, yes, and mindless, too. It's usually wrong and costly. For example:

Eleven years ago, technology stocks were all the rage after they had already doubled or tripled or quadrupled (or risen even more). Like trees they would grow to the sky, we were told, except people forgot that in the real world trees don't really grow to the sky. Then Cisco, Intel, and Microsoft and scores of others collapsed and even today most are far below their 2000 peak.

The collapse showed how out of whack prices were at the top, driven even higher by those who for months paid more and more for less and less as the bubble inflated. Greed will do that. Fear has the opposite effect.

At the worst of the financial crisis post-Lehman in 2009 when bank stocks were plummeting, the collapse of the financial industry was imminent, or so we heard. No, it wasn't.

Those financial stocks so destined for the scrap heap were terrific buys for those who didn't simply assume that the steep downtrend would continue. Wells Fargo was 8, now its 32. Goldman Sachs has more than doubled. Buyers paid less and less for more and more. With the strong market, some profit-taking is to be expected.

When it does, the familiar naysayers, call them perma bears, will be paraded on the financial networks. Many of these people have made careers predicting things that don't happen. Don't let them scare you. There are too many positives -- earnings and valuation being the most important.

I'm in the bullish camp for another reason that few mention -- there is and there will be no acceptable alternatives to stocks if capital appreciation is your goal.

For people in their 30s, 40s, and 50s, and to a lesser extent older investors, appreciation had better be the goal, one that couldn't be reached this year with bonds or cash and won't be reached next year or beyond unless people own stocks.

Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.