Got Taphephobia?

By Dian Vujovich

Ever hear of taphephobia? It’s the fear of being buried alive and something crystal ball market commentators have a base fear of should their market projections go horribly wrong. Its opposite is acrophobia — the fear of heights.

At least that’s what Matt Koppenheffer wrote in an article published earlier this week in Trading Today’s Market. (http://tinyurl.com/qols3n .) The piece is about whether investors ought to be buying or selling.

Some reasons he sites for selling? Well, with the S&P up 47 percent from its closing low in March, preserving the capital you’ve made could make sense. After all, unemployment is high—pros say near 10 percent. (I personally think it much higher.) Plus, Uncle Sam has spent a ton of money keeping the economy a float and that’s likely to come back to bite us one day.

On the other hand, maybe buying now makes good sense. Real estate prices are improving, global economics pros say things are getting better around the world and many U.S. financial firms are doing well.

Koppenheffer writes that finding the answer lies in being a fundamentals-oriented investor. “Our concern shouldn’t be over how much the market has gone up or down, but rather whether its valuation is attractive or unattractive.”

He uses Robert Shiller’s work to make his point. Shiller is into tracking the S&P’s price and earnings figures and his calculations suggest that the long-term average for the P/E of that index is around 16.3 Right now it’s 17.5. Before the market’s crash it was 27.

Does that mean we buy?

Well, not really because the pros figure earnings are expected to remain low through next year.

So?

The author suggests two things. That index funds might be a good choice for the long-term investor. But a better suggestion? Small-cap stocks.”For individual investors,” writes Koppenheffer, “they can be a great way to find hidden value — particularly at the outset of an economic recovery.”

The guy makes a valid point. But why didn’t he just tell me that right off the bat.