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Stock Market -- What stage of the business cycle and what is in demand?
Old 05-19-2007, 09:17 AM   #1
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Stock Market -- What stage of the business cycle and what is in demand?

It seems that small cap, mid cap, international stocks had a great ride the last few years. Do you think we are at the stage of the business cycle where Large Caps will dominate for a couple of years?

It appears that the DOW exceeded it high and the S&P 500 is knocking on the door.

I am a little heavy in large caps and have been wanting to allocate/move more money into other caps and international.

I do not try to time the market (especially in the short term)... However, I am not above making allocation decisions and trying to stay in sync with the markets rhythms.


What do you think?
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Re: Stock Market -- What stage of the business cycle and what is in demand?
Old 05-19-2007, 10:13 AM   #2
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Re: Stock Market -- What stage of the business cycle and what is in demand?

Outside of O&G/Metals, our biggest returns have been in Small Caps. I would recommend you watch for a dip and then diversify into small cap.
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Re: Stock Market -- What stage of the business cycle and what is in demand?
Old 05-19-2007, 10:40 AM   #3
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Re: Stock Market -- What stage of the business cycle and what is in demand?

If you want to market time by market segment, because of the limitations in evaluation fund valuations, it seems like you should just find the segments that have done the worst over the last year and/or few years. Of course, that isn't international (or anything else for that matter).

One fundamental problem with fund investing IMHO is that it's much harder to get a handle on the underlying data for your fund and therefore harder to value. You can find a P/E on most (although you have to figure out if that's trailing, current or forward earnings) and a dividend yield and maybe a piece or two of other data, but it's hard to find data like the P/B, debt levels, ROE/ROC/ROA, cash flow, etc. And when you do find it it's harder to put any trust the data IMHO because: (1) we all know how mass data collection gets screwed up sometimes, and (2) the companies are in so many different industries that some of the data becomes meaningless because it needs to be compared within a particular industry (i.e. book values matter for banks, FFO matters for REITS in lieu of earnings, it's expected that utilities will have a lot more debt, etc.)

So, if you're an asset allocator, I figure unless things are totally out of whack, you set the percentages and move on because you can't look at fine differences in valuations when comparing funds.
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Re: Stock Market -- What stage of the business cycle and what is in demand?
Old 05-19-2007, 03:02 PM   #4
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Re: Stock Market -- What stage of the business cycle and what is in demand?

A good percentage of large cap profits are generated through international sales. This is a tread trend that will continue and only get bigger. Therefore I donít see the US Business cycle as playing as larage of a role as before. That said, compared to the other sectors; large caps are best positioned to profit from going international.
Also after the 2000 dot com crash, I see a general trend toward diversifying ones portfolio. This caused a drain in large caps while people moved to other sectors. This trend is winding to a close as most people who are going to diversify have already done so. The end result of this is that the large caps have been undervalued for years. We are now seeing billionaires buying into large caps, let alone all the M&A activity. I'm thinking large caps will be the sector to be in at least for the next couple of years.
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Re: Stock Market -- What stage of the business cycle and what is in demand?
Old 05-19-2007, 07:40 PM   #5
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Re: Stock Market -- What stage of the business cycle and what is in demand?

Sounds like you're thinking of market timing. Shame, shame
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Re: Stock Market -- What stage of the business cycle and what is in demand?
Old 05-19-2007, 08:17 PM   #6
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Re: Stock Market -- What stage of the business cycle and what is in demand?

Quote:
Originally Posted by chinaco
It seems that small cap, mid cap, international stocks had a great ride the last few years. Do you think we are at the stage of the business cycle where Large Caps will dominate for a couple of years?
I am a little heavy in large caps and have been wanting to allocate/move more money into other caps and international.
The demise of small caps and international has been predicted for several years now. It just can't possibly go any higher. Yup.

Hang onto that asset allocation and keep rebalancing. You'll call the sector rotation right eventually, but it won't matter.
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