{"id":37397,"date":"2013-04-09T01:53:23","date_gmt":"2013-04-09T05:53:23","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=37397"},"modified":"2013-04-09T01:53:23","modified_gmt":"2013-04-09T05:53:23","slug":"move-over-warren-buffett-heres-the-new-golden-rule-for-investing","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/04\/09\/move-over-warren-buffett-heres-the-new-golden-rule-for-investing\/","title":{"rendered":"Move Over Warren Buffett, Here\u2019s the New Golden Rule for Investing"},"content":{"rendered":"

By WallStreetDaily.com<\/u><\/a> <\/p>\n

In yesterday’s column<\/a>, I debunked the myth that the stock market is long overdue for a pullback.<\/p>\n

You might not believe it, but it’s true!<\/p>\n

That being said, I’m afraid many of you walked away thinking that it’s simply a matter of (more) time passing by before a pullback or correction materializes.<\/p>\n

That’s not the case, though.<\/p>\n

You see, the mere passage of time doesn’t usher in pullbacks. It takes something specific to trigger them.<\/p>\n

Or, as Deutsche Bank’s David Bianco says, dips might be inevitable, but “they don’t happen in absence of bad news or emerging risk.”<\/p>\n

And right now, there are no emerging risks on the horizon. Don’t just take my word for it, though.<\/p>\n

“We’ve got low inflation, improving domestic and global trends, [an] accommodative Fed, and it all adds up to a package that is a constructive backdrop for equities,” says Jim Russell, Senior Equity Strategist at U.S. Bank Wealth Management.<\/p>\n

Indeed. That only leaves really bad news as a possible catalyst for a pullback or correction. So what type of bad news could ultimately trip up the stock market?<\/p>\n

The opposite of what’s propelling it higher, of course!<\/p>\n

Don’t Forget the Golden Rule<\/strong><\/p>\n

Forget a 5% pullback or a 10% correction. Some pundits and investors believe we’re in store for a massive 25% meltdown.<\/p>\n

Fear mongers! Or maybe they’re just afraid of violating Warren Buffett’s golden rule of investing to “never lose money.”<\/p>\n

Whatever their motivation, it doesn’t matter. The reality is, it’s going to take a sudden drop in corporate profits to collapse the stock market.<\/p>\n

After all, stock prices ultimately follow earnings. I know I’ve told you that countless times already. But I’m afraid many of you still don’t believe it.<\/p>\n

Maybe you just need to hear it said differently? If so, consider Larry Kudlow’s phrasing: “Profits are the mother’s milk of stocks.”<\/p>\n

Too National Geographic<\/em> for you? Ok. On second thought, maybe you just need additional proof.<\/p>\n

Well, here it is, courtesy of Dr. Mark Perry at American Enterprise Institute (AEI).<\/p>\n

\"\"<\/p>\n

As Perry explains, a one-to-one relationship exists between stock prices and after-tax corporate profits. For every increase of $1 billion in profits, the S&P 500 rises about 1 point. That is, with two notable exceptions: the dot-com bubble and the Great Recession.<\/p>\n

As you can see, stock prices got too far ahead of corporate earnings during those periods. Sure enough, the market restored the relationship between corporate profits and stock prices by collapsing.<\/p>\n

Or, put simply, stock prices ultimately followed earnings<\/em>.<\/p>\n

Here’s why all this matters…<\/p>\n

According to Perry, “In the current\u00a0bull market\u00a0rally… corporate profits are consistent with stock market levels.” So the one-to-one relationship is in full effect. And that means there’s nothing abnormal about the current bull market. Corporate profits are driving stock prices.<\/p>\n

By extension, as long as corporate profits keep increasing, stock prices should, too. And that’s exactly what analysts expect to happen…<\/p>\n

After rising for more than three years, the consensus estimate calls for profits for S&P 500 companies to keep climbing to hit a record of $109.30 this year.<\/p>\n

Bottom line: Absent a sudden drop in corporate profits – or the Fed unexpectedly pulling the plug on its quantitative easing initiatives – a pullback or correction is not going to magically materialize.<\/p>\n

Stay tuned for tomorrow, though. I’ll share three key metrics to help you detect any deterioration in earnings – well ahead of the average investor.<\/p>\n

Ahead of the tape,<\/p>\n

Louis Basenese<\/p>\n

Article By WallStreetDaily.com<\/u><\/a><\/p>\n

Original Article: Move Over Warren Buffett, Here\u2019s the New Golden Rule for Investing<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By WallStreetDaily.com In yesterday’s column, I debunked the myth that the stock market is long overdue for a pullback. You might not believe it, but it’s true! That being said, I’m afraid many of you walked away thinking that it’s simply a matter of (more) time passing by before a pullback or correction materializes. That’s … <\/p>\n

Continue reading “Move Over Warren Buffett, Here\u2019s the New Golden Rule for Investing”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-37397","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/37397","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=37397"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/37397\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=37397"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=37397"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=37397"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}