Pros See More Life in Bull Market

Associated Press, Meg Richards
2/19/2005

Any investors who read their January financial statements might be feeling a little too shell-shocked to go back into the market. Put your trepidation aside, professional investors say, because there are plenty of reasons to be buying.

While stocks have recovered somewhat from their poor performance last month, the Standard & Poor's 500 remains stubbornly negative for the year, leaving investors with little motivation to buy. And while money is making its way back into stocks - TrimTabs Investment Research estimates $7.5 billion has flowed into domestic equity funds since Jan. 27, compared to outflows up to that point - the lack of enthusiasm for equities is palpable.

Amid the gloom that's hanging over the market, however, a quiet bullishness prevails among professional investors, who point to a robust economy, relatively low interest rates, tame inflation, strong corporate profits and positive earnings growth….

Regrettably, small investors rarely buy the right stocks at the right time, a painful point driven home by recent fund flow data. Flows have been weak so far this year, and during January, the only money going into stocks was going overseas. Only in the last several weeks has more money been coming into U.S. equity funds than global funds, said Charles Biderman, president of TrimTabs.

"Here's the truth ... whenever the percentage of new money going into global funds is very high, it's typically right after the dollar has made a new low," Biderman said. "They miss it. They always start to buy global funds after the dollar has started to turn up. The truth about individuals is flow follows performance. When flows become big, for whatever reason, it's usually a turning point. Flows are typically a lagging indicator to the market and a contrary indicator at extremes."

Meanwhile, almost no money has gone into tech funds, a sector that has fallen far out of favor; the tech-heavy Nasdaq composite index has slumped 5.4 percent, year-to-date. For Biderman, who remains confident about the economy, this was an opportunity too good to resist. He recently bought shares of the Nasdaq 100 Trust exchange-traded fund (QQQQ) for a portfolio he keeps for his children.

"The time to really invest is when everyone seems nervous. If you're a long-term player and you're investing a portion of your money in the market every month, just buy a cheap index fund and forget about it." Biderman said. "The biggest mistake people make is when they stop investing during bad times, because they miss the benefits. That's how dollar-cost-averaging works. It's harder to buy when everybody is worried, but it's worth it."