Growth Trumps Everything

The stock market is making new highs week after week.  "How can that be?" some ask.  After all, the global economy is limping along, Japan (the third-largest economy) is in a recession and Europe is flat-lining.  U.S. GDP had a good last quarter but mostly limps along.  So what gives?

First, I'll remind readers that for years I've been saying that there is no alternative to stocks.  Bonds, commodities, real estate, cash equivalents, gold and Treasurys all pale in comparison.  Only stocks provide growth and in many cases a good and rising income stream as well.  That alone explains part of the bull market.  Nothing new to say about that.  It is what it is.

The prospect of future growth spurs investors, and it's doing so now.  It starts at the top.  Unless the economic pie is growing, personal income and corporate earnings will stagnate.  Yes, some companies can grow at the expense of others, but investing is a lot easier when GDP is ticking up.  The outlook for GDP growth into next year is improving.  Finally.

Earnings growth, it is said, is both the mother's milk of a bull market and the key to investment success.  The proof: since the market bottomed in March of 2009, stocks have soared and so have earnings.  No coincidence there.

Growth is the key on the portfolio management level, too.  Peter Lynch, once the manager of Fidelity Magellan, said: Invest in well-run companies whose earnings will grow.  It's no more complicated than that.  If you're right, the stocks will rise over the long term no matter what else is occurring.  That was true years ago; it's true now.

— David Vomund is an Incline Village-based fee-only money manager.  Information is found at www.ETFportfolios.net or by calling 775-832-8555.  Clients hold the positions mentioned in this article.  Past performance does not guarantee future results.  Consult your financial advisor before purchasing any security.