Having attended two industry conferences in as many months, it is safe to say that this remains one of the most hated bull markets in history. About the only good thing anyone has to say about the current joyride to the upside is that prices are at all-time highs. And once that admission is made, the complaining usually begins.

The market is rigged, they say. Without the central bankers of the world, the market would be in the tank, we're told. There are growth problems, oil problems, employment problems, Europe problems, technical divergence problems, political problems, yada, yada, yada.

The bottom line appears to be that unless investors subscribed to a trend-following approach and simply closed their eyes and bought after each and every crisis, a great many missed out on a large degree of the 200+ percent gains that have occurred since March 9, 2009.

To be sure, there have been a LOT of things to worry about over the last six years. The potential collapse of the global banking system in 2009. The potential implosion of the Eurozone in general and Portugal, Ireland, Italy, Greece, Spain in particular. The weak economic recovery in the U.S. The politicking in Washington D.C., which led to the downgrading of our country's debt rating. Deflationary fears. Inflationary fears. Too much QE. Not enough QE. Yep, that's right, there has always been something to worry about in this market.

What Comes Next?

Then there are the expectations about what the future holds for the stock market. In general, a great many advisors expect the boom-bust cycle seen since the late 1990's to continue. Every big gain has ultimately been followed by disaster in the stock market. And with the S&P having gained more than 200 percent during this bull run, the thinking is that the next move will be down - hard.

S&P 500 - Daily

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The question on the minds of many investors is why exactly stocks continue to elevate. Aren't there global macro concerns to be feared? Isn't it time for the bears to return? As such, a large segment of the investing public has missed out on tremendous gains.

Playing It Safe?

The bottom line is that nobody wants to get fooled again. Nobody wants to miss the next big, bad, bear market. Nobody wants to misinterpret the next crisis. And nobody wants to see their accounts down 50 percent again - ever. So the safe thing to do is to, well, play it safe.

However, there is a risk to the "play it safe" approach as well. With the market basically defying all the naysayers over the past three years, the public is now coming back around to the idea that the stock market is a good thing. Thus, the question of the day seems to be, why aren't my accounts up as much as the stock market?

What is at play here is a little something called behavioral finance. In short, the key is to understand that we humans tend to be emotional beasts and tend to all too often fall victim to those emotions when investing. We sell when we "feel" bad and buy when we "feel" good. And unfortunately, this is the antithesis of how the stock market game needs to be played.

The recent Dalbar study confirms this, showing that investors only actually earn about half of the returns available in the market. Why? Because they fall victim to their emotions.

What's The Answer?

There are really two ways to overcome the burning desire to sell accounts to cash when it feels like the world is coming apart at the seams and to buy when everything feels safe again (i.e. when the indices have returned to all-time highs.

First, there is the buy-and-hold approach. The two bear markets seen from 2000 through 2009 caused a great many investors to give up on this idea and many will argue that few people have the internal fortitude required to implement such a plan. However, if investors simply ignored both the Tech Bubble Bear and the Credit Crisis Bear, they would have been fine.

A Modified Approach

However, just sitting there and doing nothing when the sky is falling can be tough on the nerves. So, a better approach would be to "be like Buffett." In short, when the bulls are running hard and everything is hunky dory, make sure that you raise a little cash so that you are able to "buy when there is blood in the streets."

Remember, buying right is half the battle. If you had been buying in 2002 and 2008, your accounts would have seen truly remarkable gains. But the bottom line is one has to have cash on hand to be able to implement such an approach - and also the ability to pull the trigger.

A Better Way To Play?

Another way to play the game is to have a plan, a strategy, or a system in place to deal with the ups and down in the market. Remember it is one thing to get out of the way of a market that is falling hard. However, it is another thing entirely to get back in.

It almost doesn't matter what plan you utilize. No, the real key is to have a plan and then stick to it. But unfortunately, most investors don't really have a well-defined plan to deal with the markets. They assume that diversifying between stocks and bonds in their portfolios will keep them safe.

But let me ask a question. What happens to the prices of stocks and bonds when interest rates rise for a long period of time? The answer is, nothing good.

The key point on this Monday morning is that NOW is the time to start planning for 2015 and beyond. Don't look now, but next year is right around the corner. So, NOW is the time to review what is working in your portfolio and what, if any, changes need to made. And NOW is the time to decide what strategy to employ going forward.

Turning To This Morning

While the stock market rally in China rages on, worries about growth in Europe are giving traders pause here in the U.S. this morning. After gaining +9.5% last week, Chinese stocks powered ahead by another 2.8% overnight as investors scurry to get involved with the new shares available. However, weaker than expected data out of Japan and Germany are creating concerns. Next up, there are new reports about the dissension within the ECB, which of course brings into question the reality of QE across the pond. Then there is the report that Mickey D's (NYSE: MCD) sales were weaker than expected. And finally, there appears to be new concerns about the Fed removing the "considerable time" language from the FOMC statement at their 12/17 meeting. Now toss in the fact that tax selling season is in full swing, and you've got the making to a weaker start on Wall Street.

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

Major Foreign Markets:
    Japan: +0.09%
    Hong Kong: +0.19%
    Shanghai: +2.80%
    London: -0.89%
    Germany: -0.60%
    France: -0.90%
    Italy: -0.66%
    Spain: -0.68%

Crude Oil Futures: -$1.35 to $64.49

Gold: +$3.00 at $1193.40

Dollar: higher against the yen and euro, lower vs. pound

10-Year Bond Yield: Currently trading at 2.306%

Stock Indices in U.S. (relative to fair value):
    S&P 500: -5.02
    Dow Jones Industrial Average: -50
    NASDAQ Composite: -12.32

Thought For The Day:

"It isn't what we don't know that gives us trouble, it's what we know that ain't so." Will Rogers

Positions in securities mentioned: None

Wishing you green screens and all the best for a great day,

David D. Moenning
President, Chief Investment Officer
Heritage Capital Research
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