Earlier this week, shares on Wall Street plunged, with the Standard and Poor's 500 Index dropping 1.3%, the most in two months, over concerns about valuations.
In one of the more bizarre quotes I've seen for quite some time, Bruce Bittles, chief investment strategist at RW Baird & Co told Bloomberg…
"Sentiment is extremely optimistic and that's a negative for stocks."
Work that one out for yourselves, Foolish readers, because it has got me stumped!
What I think Mr. Bittles means is that investors may actually be paying attention to the value of companies and their earnings, rather than buying anything and everything in sight, with little concern for quality or value.
As if to emphasise the point, and to remind all of us that hot stocks can and do suddenly turn cold, overnight on Tuesday, yoga-wear retailer Lululemon slumped 17% and home soft-drink maker SodaStream's bubble burst when it crashed 26%, both after warning on profits.
Fad stock alert!
The word 'fad' springs to mind when describing those two stocks, and fads NEVER last. Look out, facial hair and tattoos!
Back to the markets, with the clearly bearish Mr. Bittles going on to say…
"Stocks have entered the new year overbought and over-believed and until we digest that, we're likely to stay in this range."
Over-believed? That's a new one. I'll keep an eye out for more actionable and incisive insights from Mr. Bittles. If nothing else, they promise to be amusing.
The S&P 500 has lost 1.6% so far in 2014 — it's the worst start to a year since 2009, according to Bloomberg.
And yesterday, here in Australia, the S&P/ASX 200 clocked its seventh day of losses in eight trading days.
I'm sure some technical analyst will extrapolate from the above that the next stop for the ASX is 5,013, or some such guff.
On the bright side… For all I know, and they know, the next stop could just as well be ASX 6,000.
Also on the bright side, the soft start to 2014 doesn't necessarily mean this is going to be a dismal year at all.
In 2009, for example, the S&P/ASX 200 index slumped 10% in January before ending the year up 30% – not including dividends!
Rather than stocks being "over-believed" and in some sort of trading range, perhaps this is a great time to selectively be adding stocks to your portfolio.
I for one am licking my lips at the prospect of cheap prices on offer for quality ASX stocks, especially those of the high-yielding, fully franked dividend variety.
Telstra's $7 billion cash war chest… and an even juicier dividend heading your way?
Speaking of dividends, everybody's favourite dividend stock, Telstra (ASX: TLS) is amassing a significant lump of cash that could find its way into shareholders' pockets.
Not surprisingly, income-hungry investors are salivating at the thought.
Earlier this week, the telco announced it was selling 70% of its Sensis business for $454 million.
That's chickenfeed for Telstra, but when you add it to other recent asset sales, plus an expected $4.6 billion or more in free cash flow in 2014, you're looking at a very decent lump of change.
Expectations are that the telecom giant has earmarked the cash for capital management purposes, which could include a higher dividend, a special, one-off dividend or a share buyback.
CEO David Thodey is reported as saying that he is conscious that shareholders would appreciate a return in dividends, which could mean a lovely bonus for Telstra shareholders this year.
A golden buying opportunity?
I don't blame you if this falling market leaves you feeling dispirited and poorer for the whole eight-days-and-counting experience.
Can't EVERY year be like last year, which saw the likes of Commonwealth Bank of Australia (ASX: CBA) jump around 30%, including dividends?
But here we are, with a soft start to 2014. Despair begets despair, with falling markets causing investors to lose confidence, dragging the market down further.
But Foolish investors will realise that a pullback is the perfect opportunity to put that spare cash to work in the stock market, by picking up stocks on sale.
With $1.783 billion of cash sitting in Australian bank deposits and earning next to nothing as of June last year, investors are missing a golden opportunity to earn higher returns.
The US economy is recovering, albeit slowly.
The basket cases of Europe appear to have sorted their major issues out, and China and other Asian countries are still growing strongly.
All of that points to a higher stockmarket ahead, with Bell Potter's Charlie Aitken predicting the ASX could rise to 6,000 within the next 12 to 18 months.
That's a return of around 15%, thumping the returns available on term deposits.
Is that a golden glow or just rust?
Speaking of 'golden' opportunities, it's no secret I'm a bit of a gold bug, with my portfolio containing a smattering of gold-mining stocks.
U.S. interest rates are set to rise again, and inflation may reappear. All of which means I'm having another, closer look at gold miners now.
At the start of 2013, most analysts were predicting the gold price would soar. Some were even predicting prices of over US$2,000 an ounce. Instead, the gleaming metal had its worst year since 1981.
Now, analysts have lowered their forecasts for 2014, with many expecting gold to trade between US$1,200 and US$1,300 an ounce.
CIMB Resources analyst David Coates has told The Australian Financial Review that now may be the time to jump into gold stocks, with the All Ords Gold Index at historic lows compared to the gold price in Australian dollars.
Some stocks have already climbed in recent weeks, with one of my holdings, Silver Lake Resources (ASX: SLR), up more than 50%, while Perseus Mining (ASX: PRU) has jumped 35%.
"One of the things those moves indicate to me is that the market is taking, at the very least, a less bearish view on the gold price and that it will settle at a higher level than people have factored in," Mr. Coates said.
Back in early December, Motley Fool Share Advisor guru Scott Phillips surprised almost everyone when he said gold stocks were looking a little interesting. Like a good number of my Motley Fool colleagues, Scott had long been a bear on the gold price.
Since then, the basket of five gold stocks Scott revealed he was looking at is up on average almost 30%. All that glitters is gold, finally!
For those interested in taking a closer look at some gold stocks, Silver Lake, Beadell Resources (ASX: BDR) and Northern Star Resources (ASX: NST) are my preferred plays in the sector. But please note that those are definitely not official Motley Fool recommendations, so don't rush out and buy them.
Peter Lynch's common sense approach, and a speculative stock for my portfolio
One of renowned stock-picker Peter Lynch's most famous strategies was 'invest in what you know', and he used it to great effect while running Fidelity Investments' Magellan Fund from 1977 to 1990.
Magellan was the top-ranked fund in America during those years, averaging an astonishing 29.2% in returns a year, and only underperforming the S&P 500 index twice.
Another point Lynch made was that observant amateur investors can find great stocks before the professionals have cottoned on, by being aware of the products and services being used around them.
Which brand of beer, wine or soft drink is most popular with friends? Where do people shop for groceries or clothes? Which company provides the favoured mobile phone or internet service?
Could this small ASX stock be a match for Google Maps?
That point stuck with me back in early 2013, when I suddenly couldn't get onto Nearmap's (ASX: NEA) website to take a closer look at the most recent overhead pictures of my house.
I had been using the website for some months, as the overhead pictures were much clearer than those on Google Maps, and were updated much more frequently, with a timeline of images available as well.
As you can imagine, I was most annoyed. It seems the company had decided it wasn't going to give away access for free any more, and had setup a paywall.
Fast forward a few months, and Nearmap reported that bucket-loads of cash were flowing into the company's coffers.
I jumped in and bought some shares, mindful that at that stage, Nearmap was a purely speculative investment, so I limited the amount I invested.
Nearmap has yet to officially report a profit — that should come in 2014 — and in the meantime, the company is building up a substantial cash balance.
Personally, I'm looking forward to seeing the company's six-month results, which will be released in February. Again, this is not an official recommendation, so please don't rush out and buy it.
The point is, the next time you are out in public, take notice of trends around you with an investor's eye, and you too can discover potentially successful companies before professional analysts do.
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