Investment advisers and their clients should cheer when the term “uncertainty” is used to describe today's markets.
That term is almost like a billboard screaming of opportunity, according to Richard Bernstein, chief executive of an eponymous independent investment advisory firm.
The time to worry about the markets is when investors are certain, said Mr. Bernstein, a former chief investment strategist at Merrill Lynch.
He spoke last Monday at the Investment Management Consultants Association's New York conference.
The title of Mr. Bernstein's talk was “Fear and Indecision: Sounds Like a Bull Market,” and he stressed that periods of “wine and roses” and euphoria in the market are signals that a bull market is ending.
“This could be the greatest bull market of our careers,” Mr. Bernstein said, drawing comparisons with investors' missing a big part of the run-up in stocks in the 1980s to today's investors who continue to sit on the sidelines.
“Individual investors are not good at picking bull markets,” he said, adding that investors' fears 30 years ago were similar to those of today.
First of all, investors were concerned about inflation in the early 1980s, just as they are today. Investors also were worried about federal budget deficits and debt, as well as slowing corporate profit margins.
Likewise, investors were fearful of “runaway monetary policy,” oil prices, economic growth of between zero and 2.5%, not to mention federal tax policy, sovereign debt and federal entitlements such as Social Security.
“These are important issues, but there's a difference between thinking like an investor and thinking like a politician,” Mr. Bernstein said.
Investors' pessimism is actually good news for stocks.
“The market is not overvalued, according to our models,” Mr. Bernstein said. “We're still arguing that the market is very cheap.”
Overenthusiasm for stocks is a typical bear market warning sign, he said, adding that such boisterous sentiment doesn't exist in the market right now.
Mr. Bernstein calls one of his current major investment ideas the American Industrial Renaissance.
“Small and midcap industrial companies [in the United States] are actually gaining market share,” he said.
“Why? Wage compression and energy costs,” Mr. Bernstein said.
“It's not just natural gas. Outside the Middle East, the United States has cheapest gas prices in the world,” Mr. Bernstein said.
“This is really in the first or second inning,” of such a revival in manufacturing, which does not include large global players, he said.
“It's the only "pure play' out there right now,” Mr. Bernstein said.
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