Five years into a bull market and what do we see? Neither raging enthusiasm for stocks nor widespread fear of an imminent market collapse.
In fact, I'd suggest that we are now wandering through a hazy no-man's land, where stocks drift without any particular direction. That makes it tough to decide on big, aggressive investment moves – but surprisingly easy to put a plan together.
This no-man's land is best defined by the S&P 500, largely because it is the world's most important benchmark index and also the best index to ascertain the health of the global market, given the size and importance of many of its constituents.
Right now, it is awfully difficult to make the case that the index is either expensive or cheap. It trades at 17-times trailing earnings, which is only a tad above the historical norm. And it trades at 14-times next year's estimated earnings, which is reasonable.
Many strategists describe it as "fairly valued," which means that stocks should plod higher with rising earnings and a strengthening U.S. economy. What constitutes a bullish argument these days is that no one can detect much bullish fervour in the market, suggesting that all the good news has yet to be factored into share prices.
That sounds all right. But it marks a notable shift from earlier stages in the bull market, when optimistic strategists argued for considerably stronger upside potential as the economy worked through its various obstacles.
At the same time, pessimistic forecasts are losing their ability to provoke fear among investors. Views from prognosticators such as Marc Faber, Lakshman Achuthan, John Hussman and Gary Shilling – who saw recessions and market mayhem over the course of the bull market – are now trotted out more as curiosities than realistic forecasts.
Ongoing economic growth, declining unemployment and a 180-per-cent gain in the S&P 500 since 2009 will do that.
Small investors offer a similar case, where extremes of fear and greed over the past five years have given way to shoulder shrugs. The latest weekly sentiment survey from the American Association of Individual Investors shows bullishness at 37 per cent – right in the middle of the extreme high and low readings since the bull market began in 2009, and nearly bang-on the long-term average of 39 per cent.
Add it up and it is hard to construct a table-pounding view of the stock market's near-term direction, up or down. If extremes in sentiment are marked by fear and greed, what we have here is cautious interest.
That doesn't mean the market is destined to move sideways – although it could. It simply means that it looks particularly foolhardy to take aggressive positions by either ramping up your exposure to stocks or avoiding them altogether.
Fortunately, this isn't a big problem. If the market isn't providing any clear signals, emulate the mood with a wishy-washy portfolio that takes a secular approach.
For me, that means picking a conservative equity allocation of 60 per cent (low compared to previous years) and sticking to it. As stocks rise, and the allocation rises with them, I trim my holdings. If the market corrects, I'll be buying stocks.
It's not a fun approach and it's definitely not interesting. I won't make a fortune if the market takes off on a new rally or lose a bundle if it falls into another downturn.
There are times when it makes perfect sense to charge into stocks or retreat from them – or, as Warren Buffett likes to say, be greedy when others are fearful, and fearful when others are greedy. This isn't one of those times.