The Market Keeps Going Higher

It seems that lately each time I turn on the business news I hear about how the markets are setting new records time and time again. It puts pressure on anyone sitting with a large cash balance to want to put their money to work in order to chase the incredible capital appreciation that just keeps rolling. Analysts routinely revise their price targets higher on stocks and the frenzy around the stock market rages.

Given the nature of this rising market, what are investors to do?
One thing that I always try to remember when hysteria abounds is that the same analysts who raise their price targets and who plead their case as to how high the market can go are the same analysts who will be arguing about the bottom when (yes, when) things turn around. No market rises in perpetuity without a slowdown at some point and certainly not a market that is being fuelled with liquidity from central bank policies.

The most money I ever invested in a single year was done in 2009 when the market was low and optimism among stock market “gurus” was hard to come by. I held faith that the companies behind the market would remain strong and build market share in a difficult environment. I looked to the continued dividend increases and solid earnings power of the strongest companies in the world such as Coca-Cola (NYSE: KO) and Wal-Mart (NYSE: WMT) as reassurance that my money was best invested than held on the sidelines.

Now, years later, I feel markets have pushed too high too fast and I do not trust the levels the market is at. I am hesitant to commit serious amounts of money in a market that is propped up by money printing. If the global economy was truly healthy, what would be the need for added stimulus?

Still, I am content knowing that I am participating in the rise of the market on the basis of money already invested at prices that offer me a margin of safety if things do turn back. My companies continue to churn off cash flow and have each become stronger than when I first bought them at lower prices. This allows me the patience to wait for better prices in the market today. Further, if my companies did see a tumble in their stock prices, I could simply add to them with new cash as their fundamentals continue improving.

If I had no position in the market at this point in time, I would likely consider building some small starter positions to get some skin in the game, but I am averse at this point to jumping into the water completely by buying heavily.

My stance on the market will develop over time as well. For instance, if the stock market were to stagnate, I may add some funds as valuations improve. I always remember that as long as my time horizon is for the long-term, the key is to own terrific businesses and continue building on that foundation.

Full Disclosure: Long KO.