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Investment advice for 2014: forget broad indexes and buy selective securities, says Jack Rivkin

Daily Ticker
Investment advice for 2014: forget broad indexes and buy selective securities, says Jack Rivkin

The stock market is starting the year with a big leg up after ending 2013 with the largest gains since 1997. The Dow Jones Industrial Average closed out 2013 at an all-time high of 16,575 -- its best annual performance since 1995. The S&P 500 Index ended last year up 29.6% while the Nasdaq gained 38.3%.

Related: Expect "Upside Surprises" for the Economy in 2014: Nariman Behravesh

Where we go from here is uncertain but there are reasons for optimism, according to Jack Rivkin, who's been working on Wall Street for 45 years. The newly appointed chief investment officer at Altegris, which focuses on alternative investments, tells The Daily Ticker, "History says...almost  any year where you've had this kind of a gain there is some follow through in the next year, and the economy is working for us as well...[and] could surprise people about how well it does."

There are of course exceptions to this view--remember 2000-2002 and 2008-2009 when stocks plummeted following strong rallies--but Rivkin isn't so worried about that. "A 30-40% correction would have to come from some outside event because the economy has steadily been improving and continues to improve," Rivkin says.

He's more concerned with how much of the good news is already built into the market. The market is "fairly valued" at current levels, says Rivkin, so he's a "little more cautious" now and recommends a "more risk-adjusted approach."

Related: Have Index Funds Become Too Popular?

More specifically he recommends more alpha rather than beta for investors, meaning more selective stock picks rather than buying broad market indexes. He explains: "Betting on the market going up worked extremely well this past year....but now you're at a point when you're beginning to look...for performance that is over and above what the market may do...looking at elements that could protect you if there is a bit of a downside."

The rising popularity of index investing "has carried all stocks up," says Rivkin, leaving "little differentiation" between them. He expects the high correlation between stocks will now fade somewhat, which is why he suggests a managed approach, selecting individual stocks and fixed income securities.

Related: El-Erian: 2014 "certain to be better" for U.S. growth

Rivkin didn't identify any specific shares but says he favors cyclicals, including industrials and some mining stocks, which should do well as the economy continues to improve, as well as European shares--"Europe could surprise" us--and selective emerging market securities.

What are your expectations for markets in 2014? Send an email to: thedailyticker@yahoo.com.
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