Q&A: Paul Desmond of Lowry's, Part II

That same type of selectivity is occurring across the broad list [of stocks] as well. Not to the same extent, but it is occurring. And so we think that it is possible that the final highs in the major market averages have not occurred yet, but that a lot of individual stocks have already rolled over into their own bear markets.

Now investors generally don't buy the market averages, they buy individual stocks. So what we are telling people is that you have got to be watching your own individual stocks at this stage of an old bull market. What you should be doing is holding onto the strongest issues in a portfolio but culling out any stocks that are failing to participate in rallies. So for example, today, an investor ought to be going back through his portfolio and saying, 'Well, the Dow was up 140 points today, did my stocks participate?' And if they didn't, that might be a sign that for that individual stock, the bull market is at or near its end and greater caution should be taken in holding onto to those kinds of stocks.

Let me personalize this a little bit, [in] your own retirement account ... are you still primarily long? Have you moved to cash? What are you doing personally?

I tend to use ETFs more than individual stocks, because my job is to take care of my clients' portfolios rather than my own, and ETFs make it much simpler to manage portfolios. So I am still heavily invested in mid-cap stocks. Everything else, every other area, I have been out of for quite some time.

So I can assume you are not buying into, 'Hey, this is the year of the big-cap?'

Oh, no. We have heard that repeatedly.

Five years running.

But when we go through and look at the evidence of, is there any signs of actual buying enthusiasm present there, what we see is that investors are absolutely ignoring the call to go out and buy big-cap stocks. Investors simply are not moving in that area. And part of that is a reflection of what I just pointed out, with the weakness in the Dow Jones stocks.