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Be a Predator, Shun the Herd

Stocks in this article: WMT MSFT INTC CSCO ABX NBR

If the herd all heads in one direction too long you know what will happen? It will come to the end of the road or the edge of the cliff or to the shores of a large body of water.

If the herd doesn't stop before it's too late it will fall over the cliff or plunge into the ocean in panicked frenzy. The results are never pretty.

With today's herd of investors and traders, the ones who are chasing stocks with decent dividend yields are getting closer to the proverbial end of the road.

It wasn't that long ago that no one wanted to buy big, best-of-breed, over-stuffed geese that lay golden eggs (one quarter at a time) such as Intel (INTC), Microsoft (MSFT) and Wal-Mart Stores (WMT).

Wal-Mart is a good example. For the longest time it was trading close to $50 and seemed stuck there with its 3% plus dividend yield. Suddenly the herd moved in. The chart below tells the story.

Around December 2011 the 100-day moving average price moved above the 200-day moving average. Except for a couple of nasty corrections it has moved steadily towards Monday's 52-week high price.

The Microsoft chart is unsurprisingly similar, and you'll also see the spikes in selling and buying volume that accompanied pullbacks or stellar rallies to new highs.


You'll also notice that since Microsoft is a technology company, it has gone the way of Intel and Cisco (CSCO) and moved downward in share price. The herd feels safer on the plains of Wal-Mart than in the cyber-world of Microsoft, as the chart below illustrates with unmistaken clarity:

And so the Masters of The Stock Market Universe, as well as the Titans of Financial Management and Monetary Policy have made it very tempting for the herd to continue to chase yield.

Here's where the caveat comes in. History shows us time and time again that just as the entire herd assumes it can feed safely on the shores of "The Sea of Dividends," the predators begin to circle.

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