Jam today, not tomorrow (or at least twice a year anyway).

Bit of a mixed bag of things going on at the moment which I am guessing is down to a bit of a "risk-off" psychology following Mario Draghi's ECB announcement last week (Super Mario powers up the markets with bond purchase program!), which provided an instant pick me up to the FTSE and the rest of global markets.
This has subsequently led to a slew of articles suggesting the start of a new bull market and asking if the time is now right to exit equity income shares.

Conversely to all this is todays "risk on" situation with markets retreating ahead of the German parliamentary vote on the constitutional legality of the ECB's proposals.

It sort of feels that topically current articles such as these are tapping into the current psyche of markets, and investors, whilst targeting and acting as confirmation for many investors that this really could be the case.
Looking around I can see a number of perceived defensive shares retreat just as other shares perceived to be more geared to bull markets enjoy a trading session or two in the sun.

The combination of a few planted seeds of doubt (BAT's, National Grid etc), and articles creating a sense of missing out seems to be enough to push a number of shares into the shadows whilst investors swing back into banking, mining etc.

As it stands I think that its too early to understand if things have bottomed out but as with the markets themselves, rotating and pivoting around the average, diversification is an important consideration in any portfolio.
What do I mean, well a headline index such as the FTSE is effectively an aggregated measure of the averaged performance of the companies that make up the index and at any one time a proportion will perform above the average, some might be on the average, and a number will underperform the average as sentiment, support and investment leaves some and migrates to others.
So it could be said that the FTSE indices themselves reflect the averaged performance of a diversified sample of companies.
The current valuation of a portfolio acts in the same manner by reflecting the averaged underlying performance of each investment.

It would be wonderful, and wildly optimistic, if one could select the single share that will outperform all others and put all of one's funds into that. 
I for one am not clever enough or have the appetite for that level of risk (not anymore at least).

But back to the question at hand, am I going to start bailing so called income shares for the apparently impending bull market. 
No is the short answer, as I believe that they continue to have their place in the diversification and strategy of any portfolio. And, you can almost guarantee that as investors rotate out of them today, many will rotate back into them tomorrow, following any change in sentiment again that might knock confidence.

I'm not even sure that I could narrowly class them as just income shares, rather that they have mature proven business plans, strong cashflows, and are certainly more focussed on shareholder returns than others which is a massive plus for me these days. 
They might have a lower level of growth than some, but many also have lower annual investment needs and strong defendable market positions, so are sharing profits and returning capital to investors on a regular basis rather than giving speculatively inflated promises of jam tomorrow (whilst taking out rapidly inflating salaries, bonuses etc. etc. in the meantime).

Significantly though, in many cases, sustainable growing dividends are also inextricably linked to a company's steadily growing cashflows. And, just as often, a strong balance sheet enables these company's to continue paying dividends even should profits "blip" for a year or so.

Jam today, not tomorrow (or at least twice a year anyway)!

Also recognising that I am neither clever enough, lucky enough, or have the risk appetite these days, I can't see that I will ever "get in first" on a share as the herd migrates. 
But with a little patience I might still be in an investment when the herd migrates back effectively creating a pseudo first in opportunity as a company comes back into fashion/requirement.

I am also more and more convinced that whatever the trends, sentiments, and support for companies/sectors/markets might be currently, they do little more than provide short term changes in direction and/or volatility. 
But even these horizons or situations just lead into the next one, and the next one, and the one after that.
And once connected these short term periods create a larger one and much like plotting time phased points on a graph there will be an overall trend be it upwards, downwards or sideways.

For me there is also a danger to be recognised that, with financial markets these days seeming to be dominated by a short term "trading" mentality (supported by the speed of light immediacy of information and trading systems), this can often give rise to overwhelming hair triggered emotions of fear, and greed, which can cloud logical decision making.

For myself then, and my philosophy, I am trying to concentrate on a longer horizon (or at least longer than some of these short term periods of volatility), with a hoped for upward trend hidden within the short term ups and downs that traders, and computers require to make small margins over and over again.

You can't see the woods for the trees and you can't see the trends for the ups and downs!

After all it seems at times that some analysts recommendations (typically sells) are geared for periods of 3 months or less as by the time they are published the targeted shares have already hit a support and seem ready to start recovering again which creates the happy coincidence (for someone), of small, private (and less privileged), investors such as myself selling into willing buyers before the shares fully recover in time for the next buy recommendation.

As I have mentioned before, it seems that between journalists, analysts, traders, and media, everyone has a vested interest in what they are saying or doing (as, of course, do I).
The journalist wants to sell articles and create a readership (sell advertising), the analyst wants to sell and create a dependency from clients (commissions), traders want to make money from volatility, and news channels hook viewers by creating drama and headlines e.g dum, dum, dum - "FTSE registers triple digit fall today" goes the headline (actually less than 2% though).

So everyone has a vested interest and motive but it is good to ask yourself what this is. 
Is it the same as your own, and that being answered, you have a better chance of understanding if the information provided affects the overall trend of an investment across the horizon that you have chosen to invest over. 
In that way you can still move from point A to point D (in your horizon), whilst hopefully being able to ignore what might be happening at B and C (as long as it doesn't fundamentally change the prospects of the company, of course). 
After all A to D is your horizon and should hopefully provide the overall trend that you, as an investor have invested in, be it in a single company, a sector, or the markets as a whole. 
B and C then become background noise and incidental volatility.

If anything taking a contrarian view again, this vested interest or "fashion" seeking exit of certain shares and sectors is what effectively creates renewed buying opportunities in much the same way that recent falls in mining and financials created a buying opportunity there just prior to this recent bounce and flirtation with recovery. 

So the pendulum swings both ways thereby creating short term volatility and buying opportunities in all companies.
But you do need to pick and understand the investments that suit your goals, psychology, and realistic attitude to risk. 
Definitely understand your personal horizons, and try not be over influenced by everything that is being thrown at you to tempt, and scare. you from your chosen path.

Finally, coming back to equity income (or dividends), these can at least help breed patience.
But if you are focussed on capital gains then a friend of mine came up with the interesting viewpoint that, you can discount your original purchase price by any dividends received (they are a return of capital after all).

More and more this seems to be my philosophy anyway.

Wish me luck.

Related posts:
- Super Mario powers up the markets with bond purchase program!