MM Money

Fear Itself

Excerpt: FEAR IS AN INVESTOR'S best friend. Fear makes stocks cheap, so that you can buy them at great prices. But, of course, to dare to do that, you have to be unafraid. It's a bit of a paradox.

FEAR IS AN INVESTOR'S best friend. Fear makes stocks cheap, so that you can buy them at great prices. But, of course, to dare to do that, you have to be unafraid. It's a bit of a paradox.
Stocks have soared since the climax of fear this summer — a "bubble of fear" created by an intensely negative, bitter and divisive presidential election. I've been saying all along in this column that the bubble would burst as the election got closer, and finally got over with. And indeed it has.

Growth stocks are strongly in the lead in this rally, which is just what you'd expect, since growth stocks get beaten down the hardest in times of fear. My two favorite equity sectors — technology and basic materials — are in first and third place, respectively, since the year's bottom on Aug. 13 (consumer discretionary nudged materials out of second place just yesterday).

That means there's less fear in the market than there was in August. True enough, but there's still plenty of fear to go around (so don't be afraid of a shortage). Just look at how cheap stocks are: prices haven't even begun to reflect anything like fearlessness. With the S&P 500 up just 7% year-to-date, stocks have a long way to go to reflect the 23% increase in earnings already booked this year.

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