At the close today we are headed up to the canyon for our annual pilgrimage. We will be back Saturday afternoon.
I thought I would just leave a couple of observations before we go.
Do you remember the fear a few months ago borne out of the credit crunch/liquidity/housing/mortgage event from earlier this summer.
The sky-is-falling folks thought this was it. A lot of moderate thinkers thought this was it. My take all along was that at worst it could cause a normal bear market or normal recession. There were many people calling for much worse.
While I am not surprised that the planet has not stopped rotating on it's axis it does seem odd that a recession in the housing market hasn't left more of a mark on the stock market. Either housing does not matter or stocks have it wrong. Can it be that simple? Probably not.
I don't have an answer, just the opinion that this still looms out there is a problem that has not gone away. I am positioned for either outcome.
A point that this serves to make is that you will not always understand why the market is going up, or down, but there does not need to be much consequence if you do not make big bets. A reader comment came in that implied the person got very defensive at the end of 2006. I do not know how big of a bet he made but it was big enough to share his experience in the comments.
A little hedge is not a big bet. There is nothing wrong with applying a little hedge at the wrong time and then lagging a monstrous move up. Missing monstrous becomes problematic because monstrous does not come along that often. I'll define monstrous as 25% or more, you can use your own number.
On Tuesday I added exposure to the euro via the Rydex Euro Trust (FXE) for some clients. The idea that the euro will either share the role of world reserve currency with the US or supplant the US makes a lot of sense to me. The position is small and the mind set is that of aggressive cash not an equity investment.
Have you seen the commercial Evander Holyfield is doing to promote his fight? He is reprising the the role of Apollo Creed in the pool from Rocky IV. Um, I seem to recall that not working out too well for Apollo.
25 comments:
aren't you a tad late to the euro party?
the euro has had a monstrous move in the past 4 weeks...
thanks for the heads up Rog, i think i'll take some profits, if you are getting in...
I see you have a dopey anonymousey back today.
When I come back I plan on seeing a Sox-D-Backs' World Series.
As usual, the fears were overblown.
It's best not to feed the trolls.
I always remind myself that everyone can tell me why the last tick just happened, but no one can tell me what the very next tick will be.
With that said, I think it's prudent to be in whatever mode makes sense regardless of where the markets are or have been. I think I've mentioned before, I always ask myself, will I sleep if the Dow drops 1000, will I be able to live with myself if the Dow rallies 1000. How do I deal with a market trading in a nauseating range for months. I know I'm really going out on a limb here, but those are the three possible outcomes (up, down or flat) and no one knows which one of the three and past history does not necessarily mean that one outcome is more likely than the other in the short term.
larry,
if you had sold the double short fund, when rog baby bought it, your timing would have been perfect...
counting on this again with the euro...the euro due for a correction after the monster run...what better contrarian technical indicator than using rogers recommendation?
have a good one larry!
bill b...
what are you trying to say man? your post is just more mealy mouth nothingness....
the market could go up, down, or flat? wow, go out on a limb billy...
Aside from a few ETF's that are at an LREP, I don't understand how anyone can find the nads to dump new money at this market. For instance....if someone happened to come across 500K right now, I could not see myself recommending much to go long on, as I think most everything is over extended.
Patience is key to making money. I am going to sit back and wait for this market to come to me.
A point that this serves to make is that you will not always understand why the market is going up, or down, but there does not need to be much consequence if you do not make big bets. A reader comment came in that implied the person got very defensive at the end of 2006. I do not know how big of a bet he made but it was big enough to share his experience in the comments.
Great post! You know, I find your blog so refreshing because I think you bring such a common sense, "how do I reach my financial goals" perspective to portfolio management.
So many blogs are about proving how smart the author is, and how right they are on everything.
I think many investors get infected with this mentality. A portfolio becomes less about achieving financial goals, and a vehicle to be "right", compete with others and the market, and demonstrate the experts they are.
I think many people just get so darn overconfident in their analysis and conclusions. I just read a post on another investing board about an investor whose portfolio is 50% energy/50% precious metals. Now I am bullish on energy and precious metals but find that to be such excessive risk taking.
thanks MikeC.
i had to change my tune after touting a seven legged Pork Belly option combo that blew up
I think many investors would be well served to use what I call the 2 portfolio approach. This is what I utilize. I learned this the hard way after a period of incredible success led to overconfidence which led to disaster (many years ago).
You segregate your money into 2 accounts. One account is to reach your long-term goals and you manage this portfolio with diversification, uncorrelated investments, and NOT making big bets. If done correctly, you should get decent returns over a 20-30 year time frame.
The second account is your trading/big bet account. Here you swing for the fences. Maybe you make alot but you are also mentally prepared to lose as well.
The trading account should be MUCH smaller and you never take money from the investment account to fund the trading account.
I find this enables one to separate investing from speculating.
I think lots of people don't have a good idea about using double down fund for hedging or hedging in general. Hedging when used properly reduces the porfolio volatility at a time you want lower volatility(such as in a down market). Hedging is like buying insurance, it costs money but you sleep better when you need it. It is relatively easy to change the portfolio risk using hedging techniques. The alternative is selling which incur income taxes. Why managing volatility is important? The reason is 20% drop will take 25% gain to break even. Minimizing portfolio is even more important for someone in retirement. You all have heard the sad story that a retiree lost 50% in his/her first year and had to go back to work.
Great day for a hike. This is just a reflection of mine based on my last two years of attempting to managemy own retirement portfolio. Appreciate any feedback.
Currently i have about 10% in equity ETF's, 10% in Bond funds, 5% cash, 10% individual stocks, and 65% inequity mutual funds, with about 15% foreign, 10% EM, and 40% domestic. Heavy tilt toward energy, guns and butter.
Now to my point: based on emotions and the ability to use stop loss points, I find that I tend to trade much more frequently in individual stocks and ETF's than I do MF's. As a result, my MF's have done better just because I tend to hold them much longer due the trading expense, etc.
Just wondered if mine is a solitary experience.
Thanks, and have a great hike, Rog. Scoot
steve.scoot--As another individual investor, my experience is just like yours. The more I read and the more I trade, the worse I do. Example--I got stopped out of DE on the last market pullback, and now it's trading at an all time high. It's no different with ETFs for me. Sometimes I long for the old days when mutual funds just redeemed shares through snail mail. Forget about CNBC, online trading, even 800 numbers. I'd be a lot better off, I suspect.
you both hit on important things all investors have to manage.
over time everyone sells some too early, too late and exactly right.
One thing to keep in mind is that from the bottom up it is very rare that you need to stop out of a large cap stock. Look at a long term chart to see this.
From the top down I believe a portfolio needs to be pruned now and then but that is more about the market (which is what top down is all about) than the stock.
I have written many posts about stop orders. I am not a fan of using them very often. Every now and then but they have many drawbacks.
Roger,
I call my 401K account the Ron Popeil account, after his quote:
"Just set..and Forget it".
It seems like the less I touch my accounts the better they do.
the pocket fisherman? lol
an obvious big macro afterall is that stocks go up most of the time.
people devote a lot of emotion when the market is going down and the comment yesterday from the fellow who got very defensive reveals the behavioral thing about losses taking a larger emotional toll than gains.
the building block behind that needs to be that the stock market has an up year 72% of the time.
Enjoy your trek. It does one a world of good to clear the mind.
I think the simple answer to your puzzle is: Inflation.
I'm not talking the fairytale government numbers, I'm talking real inflation. Like 10% a year for the last 5 years inflation. With that rate we are basically flat on an inflation-adjusted basis for the last half decade on the dow/s&p.
Consider inflation, low interests rates vs. s&p 500 earnings yield, foreign currency strength, etc. The return on fixed income assets is non-existant, especially considering the inflate to oblivion policy in place and no more fairytale CDO returns.
This is why this market will climb in the face of every apparent wheel falling off. Earnings will have to come off in a major, major way for this train to stop.... or the Fed is going to have to do some serious hiking. I suspect we ramp like there is no tomorrow followed by an epic correction once earnings yields and bond yields start to go the other way.
Keep up the good work Roger, love your site =)
-Hawkeye
Here comes the blow off top :)
damn I'm good...lol
thank you for the kind word.
to challenge your thinking If you pick another starting point, ten years back from today, or three years back from today and I think we are ahead of inflation.
10% across the board is way too much. while the govt numbers might be too low given the mix of what goes up and what goes down I have trouble believing that they are understated by that amount.
If they are double the stated numbers and you cherry pick most other periods stocks do beat inflation.
Definitely Agree. Over the long haul with the right plan it will beat inflation by a decent margin (4-6% on average I suspect).
10% a year inflation for the past 5 is probably overblown, I'm cherry picking stats from dollar / economy bears there. But it certainly is no 3.5% either.
I feel stocks + commodities are in, bonds, real estate, and treasuries are out, and until the earnings picture or rate policies change... the wind will keep blowing north for the major indices as well. It will be a strange time for the media and conventional thinkers indeed.
Enjoy the trip, I love the canyon!
-Hawkeye
Hey hawkeye.....could that be the noon rally talking? ....have a pause before the beer and bravado at 4pm?
(i'm not usually a heckler)
Hey Heckler...
Speaking of your usual terminology, 'mealy mouthed nothingness', when are you going to enlighten us here on your stellar portfolio selections looking forward?
We're still waiting. Not that we would be stupid enough to do anything you do. Like when you loaded up on double shorts on August 14th. LOL.
And Hawkeye, let's just hope that Roger is doing the only hiking around here and not the Fed. ;)
Mmm frothy.
Random Heckler:
Just look at what happens when you have rates in the basement, an easy fed, and good earnings yields.
Don't take my word for it, find out for yourself.
I'm not a daytrader so what happens at 2pm frankly doesn't matter much.
Low rates + earnings + cheap companies is a winning formula until it breaks (which it will when something changes one or more of those 3). Until it breaks I think it is going to be confusing and painful for people either too afraid to commit or too sold on bad news.
All that said I'm sure we'll have some nice panic selloffs to make the skeptics feel better. Everyone gets what they want out of the market =)
-Hawkeye
We just got back to Ohio from a trip to Zion & Bryce Utah. Awesome! Forgot the market, no TV or computers. Made money doing nothing. Now that I'm back, I see very overbought markets and since 8/16 I have funds and stocks up 20-50%. Who ever thoght a diversified mutual fund would go up 22% in less than 2 months.An ETF up 40%+, a stock up 50%+ Scary! Does it make sense. Seems alot like other bubbles that poped. Why is this any different. I'll ride it up but find it hard to add anything at these levels.
Roger - comforting to know that the market eventually recognizes what the individual investor wants. I've been searching for a foreign bond fund to hedge against the dollar's decline as well as give some yield and am finally seeing some positive etf offerings. Your analysis of the BWX etf at the Street.com was helpful, particularly the weighted breakdown. Thanks again for your positive, rational investing advice.
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