For any number of reasons (20 of which listed here) the record highs being posted on the Dow Jones Industrial Average come with dozens of asterisks, the largest of which being that the DJIA is only 30 stocks and when adjusted for inflation we're still some 10% away from 2007 highs.
The Dow setting a new high water mark is largely irrelevant. What is important is what the renewed interest in equities suggests about the next move. To help get a read on whether we're setting the stage for a multi-year bull run or inflating another bubble, Breakout welcomed Jeff Kilburg, founder and CEO of KKM Financial.
There have been enormous improvements in the fundamentals of corporate America since the lows of 2009, but Kilburg says the Federal Reserve deserves the lion's share of the credit. "We have seen corporations become leaner and meaner (than 2007) but Big Ben is the reason we're at all time highs again," Kilburg says from his perch over the trading floor of the CME.
Like all good traders Kilburg is able to question Fed policy while still profiting from the manipulation. Kilburg told Breakout viewers to get long stocks back before this rally got started at the end of 2012. With the Dow now up nearly 10% for the year he's not getting bearish but he does think it's time to start protecting profits.
"We don't want to see these gains get washed away," Kilburg cautions. "Be hedged here, these are sensational gains, these are impactful, 10% on the Dow year to date, that's tremendous. You can't let that go away."
He's exactly right. Controlling risk is the most misunderstood aspect of investing. Emotion is the enemy of profits and nothing causes more psychic pain than watching a profit become a loss. There are any number of ways more active traders can protect gains either through options or creating basket shorts or whatever else is the trendy hedge these days.
This isn't a market for the timid, but it never is. If there's one thing we've have learned over the last five years it's to take control over your own financial future. Reaching all time nominal highs on the Dow is an outstanding reason to take inventory of your portfolio and reassess your goals.
Many Americans have spent the last five and a half years wishing stocks would just get back to all time highs. Here we are, folks. What are you going to do?