Not me but maybe the market. Yesterday's decline felt like the market just gave up, it grew weary of fighting. No way to substantiate that of course, just a feeling I had in seeing it unfold. Early in the day I wrote about a slow capitulation in the market in my greenfaucet post and coincidentally the close played into that.
This leads to some meaty theoretical stuff and I certainly don't have all the answers. By now you should have figured out whether you think 40-50% down will be about it or more like 80% is it (just picking two extremes you can think of it however you want).
I said weeks ago that if you really thought this was the great depression coming at us again you should sell. That probably sill stands up now. If you do not think down 80% is in the cards then selling now would simply be selling low, very low.
Anyone reading this site for a while knows I do not think this will be a depression, I think the bottom is about in in terms of price but that we will have several more months of running up and down in roughly the same range we have been in recently.
If that pans out as I think then it will be a long time before we start to feel good about stocks. Individual issues could continue to get pasted even if the market doesn't do anything very different for a while.
That brings up a useful distinction; "what should investors be doing now?" Any buying someone might be inclined to do now can try to do one of two things (talking about long term investors not traders) either buy stocks that you think will work now or buy stocks that you think reposition for whenever the turn up finally occurs.
Buying the stocks that should work now is likely not the way to go because really what is working now (this gets at the heart of top down)? Pretty much nothing is working now. Buying something now as a place to hide out is the wrong strategy. When the market turns just about everything still standing will work as was the case in 2003. In that light it makes more sense to to point any buying you are inclined to do toward the recovery even if that is a couple of years from now.
This is not a call to buy them with both hands, I am not doing that. I disclosed having done a little buying and having plenty of cash still. The names I've bought are places I expect to lead a recovery or otherwise snap back quickly.
This idea concedes that a recovery could still be a long way off but going overweight health, telecom and staples now seems late in the game. I've been overweight those areas for a while and generally it has been right, relatively, but now that we are down 45% from the peak I'd say it's too late to overweight those areas.
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21 comments:
Interesting comments. However, to me the talk of when and where the "bottom" will be is just nonsense and a waste of time. No one can predict that and I am not suggesting that you are trying to do so.
As this mess unfolds, I am really impressed by writings of Hussman and Grantham who can rationally show why the market is behaving the way it is and expectations for the future based on rigorous analysis. Both writers show that the SP is fairly valued around 975 but that undershooting that level by 30-40% shound not be unexpected as history has shown that is normal. Reversion to the mean trendline is ultimately what should be expected.
For investors, the value of stocks is a claim on the future long term earnings. Short term earnings are almost irrelavent. Does anyone remember present value analysis? Isn't that how bonds are rationally priced? Why shouldn't it apply to stocks?
As an income investor, I'd add a third alternative to your post, Roger. This is a great time to add some beaten down, dividend payers to augment one's income stream. Many of the quality picks are in the sectors that you suggest are too late to overweight. Total return is fine for some investors, but it implies a discipline to time some sales that lock in gains. I'd rather lock in an income stream, at a low price, and watch the dividend payouts grow faster than inflation.
I like some of the corporate bond market with YTM of less than a year and 10% YTM on investment grade. Of course, who knows what investment grade is these days.
Ron
I would like to add that if u think there will be a 2003 scenario when they will all go up, why not buy indexes? Why take a chance that a specific company that could go go belly up? If you buy the index, u are guaranteed to profit when things turn around, if you buy a stock, well who knows??
anon 6:35, rationally? sure why not but the current events seem a little short on ration.
anon 11:29, nothing wrong with index funds at all. that might be right for you, i have my preferences you should definitely have yours.
Does anyone know what Hussman's Price/Peak Earnings ratio is currently at versus waht it was at when this downturn started (i.e., 10/1/07ish)? I have read that he thinks stocks are undervalued at current levels. Were they overvalued at DOW 14,000? Not necessarily by traditional metrics.
Jim Rogers has an interesting interview from the other day where he stuck to the same recommendations in his books for China and commodities. He was saying that selling China in 2008 would be like selling America in 1908, and that eventually the new middle classes in Latin America, Asia, India, and so on, will buy more and that will raise commodities prices.
http://www.ft.com/cms/893ac9c8-757e-11dc-b7cb-0000779fd2ac.html?_i_referralObject=929363526&fromSearch=n
I wonder if that's a better idea going forward for a long time horizon, if you can tolerate the short-term losses, than buying the US.
What do you think of buying the short ETF (SH or SDS) while it is above the 200 day moving average and then switch to long ETF (SPY) when that is above the 200 day moving average. I looked at prior charts and it seems to consistently outperform. It can't be that easy can it? What do you all think?
I am beginning to get back in the market. This is the time to buy long term imho. I luckily cashed out all my portfolios last year near the top. I deployed the first 150k on Monday and will deploy an equal amount every month up until April. I sense fear everywhere and now may be the best opportunity to invest for the next decade.
3:37 p.m. I agree. But many have have had this same exact feeling when the market was down 20%, 25%, 30%, 35%, etc. At some point it with be THE time. Few will know when until after the fact. Either you draw your line in sand and take your stance now or dollar cost average into it while if not THE low atleast A low. Certainly would not be buying at highs now. Or wait for a sufficiently convincing rebound such as 3:27 p.m. 200 DMA approach would suggest. Waiting for the 200 DMA would miss some of the rebound but also miss all these mini bear market rallys too.
This is exactly why ALL of you are traders and NOT investors -"expectations for the future based on rigorous analysis"
Ha Ha Ha, predict the future based on "rigorous analysis"
Then there are those that predict the future based on gut feel, trends, statistics, blah blah,
None of you yet know anything about investing, including you Roger!
Perhaps I should be writing this blog?
What is going on is a re-design of the financial system. Yes that means the old system has COMPLETELY FAILED.
Everything you learned in your MBA schools is not worthless as it no longer applies (never did actually).
Modern Portfolio Theory is now 20th Century Portfolio Theory. LOL
I'm still waiting for Roger to post something about INVESTING.
This is 6:35. Its obvious you guys have been sheltered from volatility. In my line of work, farming, wild price swings are the norm and nothing to get worked up over. The key is diversification and risk management. Investing is no different. That's one reason Ben Graham says almost everyone should be a defensive investor and maintain a 50/50 allocation. Some can tolerate underweighting in stocks when prices are high and over weighting when prices are low, but never lower than 25/75 or higher than 75/25.
Maybe farmers are better suited as investors because they normally are patient, have long time horizons, and can stomach volatility.
Anon 4:44 tell me what is wrong with buy low, sell high? Isn't that what investing is all about? Can't see how that has changed or will change in the future, or does our comrad have something different in mind?
200DMA works. Look at any long term chart on Yahoo. If you buy SH or SPY when they are above their respective 200 DMA and sell when below you outperform the market (which these days is not saying much).
For example, SDS was about 55 in Jan (a buy as it went above 200 DMA). May to June you would be out of SDS (below 200 DMA) Then back in to date where SDS is now 101! Seems to work to me. As for SPY looks like it was below 200DMA so your out of spy while your neighbor cries. Am I reading the charts wrong? Does seem too good to be true.
Since this current market has been in the tank (about last 1.5 years) SPY has almost always been below 200DMA. The rule would have saved you from bad losses. On top of that, instead of sitting in cash during this time period, had you been in the inverse SH or SDS for that same time except for about 3 or 4 months (while SDS was below its 200 DMA) you would have done great. Try any SPY or SH stock chart 3 months or more on yahoo and then overlap the 200DMA except for some few short periods you gain.
The 200 dma can spare the trader/investor -- unless time horizon has some significant meaning there is no substantive difference -- from some serious losses but it is not a very good estimator of updrafts, for that you need some sense of market valuation; e.g, what is the current price for a given probability of achieving satisfactory returns (territory every value investor knows).
Double long and double short funds allow an investor to be 100% long or 100% short and still retain 50% cash which is nice (some of us have noticed) but there are a few technical and fundamental reasons to suspect it is unlikely to last and could even seriously blow up so ...have fun but be ready to run; i.e, careful with position size and, if you can't watch the screen regularly, use trailing stops. JMO
Rog.....
give up on the ´buy individual stock´ that you think is good. Go for the asset class you are looking.......lame comment.
HERMAN MUNSTER look alike!
Hello Roger, I am sending this comment from a remote island in the Andaman sea, which I won't name, for fear of other people discovering it. If you climb a forested mountain to a clearing on top there is cell phone access and a guy down the beach has set up satellite internet using solar power.
One of the benefits of being here is I cannot check portfolio often nor take any action which in my case has been wrong in the past year. But I've been able to check weekly as well as read David Fry's column to see what's happening, Bespoke for trends, and this blog for advice and sentiment.
I was a bit alarmed to read a column on seekingAlpha about the possible demise of GE, which I am stubbornly holding. Wouldn't that be cataclysmic for the Dow?
Second thought, most investors that track their holdings have been scared out of the market, now this seems to be a phase where a lot of traders need to be flushed out, perhaps permanently.
Looking at the 10 year charts is breathtaking. I have been in the market since 99 and fortunately never really believed in buy & hold. I am < 10% invested now and plan to average back in to 50% over the next several months. EEM & FXI are on my list for better or for worse. I am also interested in HSGFX (Hussman's fund) as something actively managed, but wondering how quickly this vehicle can move from bearish to bullish bias, in the case of a big move to the upside.
thanks Jim
Thanks again for the regular blogging Roger. I hope you gain as much satisfaction from it as do your regular readers, myself included. To bring a sense of balance and focus to an investing environment which clearly lacks both gives me the satisfaction that although I've lost some money (on paper) recently I'm gaining the insight and perspective from a guy who's been there and done that in a company/occupation I never will have exposure to.
Now I've put the pom poms back in the drawer is there any sector/country you think now looks unbearable or at the least significantly overvalued compared to others? Are there any more dogs out there ready to bite, shoes ready to drop or economies ready to implode or are we done with that already and it's clean up time? After the reduction of big-ticket sales will white goods be next?
It's funny listening to everyone discuss where the market is going!!! It's been a hoot for the last 10 years.
http://tinyurl.com/65koos
this will answer your question
Invest for the long term, that will be what I intend to do. Short term trading is too dangerous. Banking will be a sector that rebounds very strongly.
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