Note: This is a three-part article. Please see part two here and part 3 here.
NEW YORK (Real Money) -- If you simply looked at the averages after this huge romp, you'd be intimidated by the prices, blown out by the ranges and mystified that so many stocks can go up so high in one year, particularly during a year when interest rates on Treasuries at last started going higher again.
So when tasked to make predictions for where the Dow Jones Industrial Average might finish next year, I initially struggled to see how the standard could go higher. Then, once again, as I have for so many years, I looked at the individual pieces of the Dow -- and I see, once again, upside.
Now, it can't be upside like I saw last year, and that's in part because we are not coming into the year hobbled and bruised like we were ahead of 2012. Back then, the fiscal-cliff drama and the higher tax discussion caused many to sell and to leave substantial profits on the table.
But we have something going on that we didn't have last year at this time: a genuine, not fits-and-starts, expansion, courtesy of pent-up demand, a shrewdly managed Federal Reserve and rates that are still low enough to propagate growth. In addition, we have something brand new and astoundingly positive -- an atmosphere in Washington that's not as poisonous. That's because the insurgents in the Republican Party have been thrown back in favor of a compromise and a belief that, if the Republicans just shut up, they will sweep in November because of the disaster that is Obamacare.While I am willing to engage in Washingtonian prattle simply to attract those who have become convinced that the government is all-powerful when it comes to stocks, I think 2014 will be a different kind of year -- one when Washington recedes and profits take center stage. I have done thousands of pieces here and on television, so it was rather surprising to me that a recent episode of "Mad Money" was perhaps the most commented one in a very long time. In it I discussed the idea that we are in a true bull market in which profits are the most important determinant of share price, and the episode included a piece in which I tried to express my jealousy of the market's affection for Twitter (TWTR)! That, again, is part and parcel with the notion that people have forgotten what really impacts stocks, which is how the companies themselves are doing. I have devoted a substantial chapter of my new book, Get Rich Carefully, to how stock-picking is going to make a comeback. It won't be market-picking, with its high water-mark risk-on/risk off nonsense -- and it won't be ETF-picking, as that sainted method of investing seems to have reached a peak, too. It's not stock-picking in a vacuum. That would be wrong. The world view that you need trace out before you pick a stock is incredibly important, and if you have the wrong one you will either make less or lose money, regardless of the stock. Still, though, next year is an "every tub on its own bottom" year, and we have to judge stocks with that in mind.
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