For now he says he is going to ignore short term bullish signs and focus more on longer term fundamentals.
The first money quote is as follows;
Given the high degree of economic uncertainties...I’ve got to wonder what is worth buying and holding onto at this point.
The reason why I think the quote is useful is that it underscores the idea that investing is not easy. I believe there are ways to make it easier on yourself but it is not easy. Everyone has their own process and perhaps given the totality ofSerrapere's process this is a particularly trying time. I don't know if that is the case, just an interpretation. An occasional reminder that this can be tough can be a psychological helper.
The other money quote;
The AI (Arrow Insight) 75-50’s primary objective is to capture 75% of the S&P’s upside and 50% of its downside.
This is sort of what I try to do, I say sort of. First I don't quantify it so succinctly and I only try to sort of do that when the market is in a bear phase, more correctly when demand for equities is unhealthy or questionable.
Long time reader Leisa echoed my sentiments the other day about believing in adding value by avoiding a lot of the downside or as I have been saying avoiding the full brunt of down a lot. Yesterday I disclosed having added a little SDS to client accounts late in the day on Tuesday. An hour or two into the day on Wednesday a reader said I was too early. Well maybe but the context here is trying to avoid the full brunt of down a lot which now has a higher probability than it did a couple of months ago when the market was much lower.
So in that context there is no way to be right or wrong after less than three hours of trading. It is not important how I protect against what I think the market might do but what is important is for you to figure out what you might do in case you think the market could have another big run down--even if you would do nothing. Even if you are in the everything is speculation crowd there is no reason you can't have an opinion about what the stock market might do. Just preparing mentally for a big decline with no action can help with enduring such a drop.
It seems like every time the market pukes down very few people prepared for it. A point I have made before is that recognition that there is more risk to the downside can, if nothing else, help prevent you from panic selling at the low.For an extra money quote related to Manny Ramirez who is playing with the Albuquerque Isotopes this week on a rehab stint; in the Red Sox pregame show yesterday Jim Rice said that Manny should cut his hair, keep his mouth shut and just play baseball.
17 comments:
Roger,
I agree that if one gets 75% of the move performance wise that is really good. Since June 8 one stock that I purchased from my cash winnings has gone up more that 50% - tom2.as . It is still a stock picker even if we are going down. I am not very confortable being in the camp that the market is going dowin since every one is in that camp - even the showemaker that I take my showes for repair. What if we go up and sideways til november 2009 and then we slide from that point til september 2010 bottoming in mid 2011. In that scenario everyone will be blown out. It looks like energy prices will be going up and in a year from now with the kurdistan(Iraq) production and some tech break thrugh in the electric automabile we will have a breakdown in oil prices(http://www.nytimes.com/2008/01/21/business/worldbusiness/21iht-cars.4.9385483.html) therefore staging a bull market from mid 2011. My numbers (since I have set up, encouraged by this blog) support such scenario.
Best,
Jeff from milan, italy
Everyone is nervous here, including me. Makes me think whoever said you were early on SDS was right (I know you don't deserve another critic).
I really am just trying to say this is difficult. Melt up after this correction seems more likely than a melt down IMO (I'm entitled to an opinion even if I am wrong).
I do think this is a tough market that will want to whipsaw and frustrate all of us.
Jeff,
funny, i just read something about Kurdistan http://seekingalpha.com/a/342x
anon, short term confounding yes. i had one thought though. if you think about it there are more false breakouts than real ones. it seems like two or three suckers rallies always occur before the real deal so in terms of numbers it a more probable that a rally in a bear is a fakeout.
"if you think about it there are more false breakouts than real ones. it seems like two or three suckers rallies always occur before the real deal so in terms of numbers it a more probable that a rally in a bear is a fakeout."
Yes, but I think we are all right to an extent. I think first we get frustration and whipsaw.
Then we get melt up until the fall or spring (this agrees with Jeff's belief we rise for a while). Then after more fake out higher there will be cause for your concerns.
I just think there is a lot of angst here and we are due for a pull back. Difficult to believe a decline starts now with all the angst. Now 6 to 9 months from now when we are all fat, dumb, and happy, then I could see a big decline.
TO Bill B from yesterday:
I try to come up with a portfolio beta I can live with if I think down a lot (to paraphrase Roger) is in the cards. Then I buy enough SDS (or whatever hedge I want to use) to get my portfolio beta near that point. Obviously this is different for each person depending on risk porfile...and market outlook...for me that number is about .15-.25. It is also a portfolio beta I can live with if I am wrong and the market goes up instead....
Lenny D.
I see the point of money quote #1 (please not how I restrain my usual teenage type porn comments) but I think I disagree.
Let's make several assumptions.
1. I'm not a trader. In general, I buy and hold
2. It's good to buy cheap
3. I can't guess the bottom
Given those 3 assumptions, while now is not a GREAT time to buy, it's certainly not a horrible time, now is it? You could buy a little now and lock in prices that are way off the highs. Those prices are AT THIS POINT IN TIME well off the lows; I think we're gonna have a few drops but I can't predict them.
Hi Roger: Interesting moving average commentary I thought ypu and your readers might enjoy and perhaps comment on....
Best, Andrew
http://www.advisorperspectives.com/newsletters09/Moving_Average-Holy_Grail_or_Fairy_Tale-Part_1.php
thanks Andrew
Stephen you make a good point.
Perhaps a different way to look at investing is with less "How much loss can I avoid or how much big a gain can I get."
An alternate is to ask "What outcome will I be more angry with?"
Picking the lesser of two evils so to speak. If we cannot accurately predict the best course of action then what action can we at least live with?
Taking your buy and hold example what is worse?
1: To get in/stay in a position now, have it drop more, and take longer to get positive.
2: To wait, have no big drop, and have to get in at a higher price.
We talk a lot about how to avoid drops but its not always bad to take an expected loss to "guarantee" a bigger gain in the future. I obvioulsy use the term guarantee very loosely.
There is so much anxiety about the market. Especially today, there is a lack of trust. Much of this economic malaise was due to the lack of responsibility of the Credit Rating Agnecies. Why do you think there is not an outcry or a move in Washington to redo the structure of the credit agencies. I read a comment a while back that recommended this duty be taken over by the fed. Perhaps this would restore needed trust.
I'm not really interesting in making existing government agencies even bigger.
What does concern me is that there's no loud voice saying anything about re-instating Glass-Steagall.
I agree with you winslow. Credit rating agencies like mco, mhp and fitch should be penilized for having a broken model for the subprime bonds. They made lots of money and that money should go back to support what the us tax payers have put out for this mess. However reality is different. Some very powerfull people have big stake in these companies and little will change. In a year or two everyone will forget what has happened and the credit rating companies will gon on their business and return to double digit % increase earnings. The public is allways the sucker. How can that be changed - it is very difficult to give any suggestion. Perhaps it is better to go along this way and try to protect oneself as much as possible. In italy there is a saying that sometimes it is better to pretend to be stupid in order not to pay a penalty.
Best,
Jeff from Milan Italy
"What does concern me is that there's no loud voice saying anything about re-instating Glass-Steagall."
Wait until all the stuff hits the fan in a year or two. The idiots on both sides of the aisle (which is pretty much everyone in DC) will eventually start to understand what many of us know now.
They simply will continue to patch a broken system they do not understand until then.
Excellent read at ZeroHedge regarding Goldman's manipulation...
It appears the market is one large manipulated casino.
http://zerohedge.blogspot.com/2009/06/goldman-sachs-engineering-every-major.html
Folks lesson learned. Never ever short the market in the midst of an up trend and in the face of quarter end window dressing by mutual funds. Do not buy sds until spx 965-1000
Where i can find information in regards to Stock market for a beginner?
On Shorting....Stan Weinstein's Profits in Bull and Bear Markets is a dated, but very good book. It's a well flagged book, and I consider it one of my most valued books.
I've also been recommending Justin Mamis' books: The Nature of Risk, When to Sell, How to Buy. When you read him, you'll immediately see his influence on Helene Meisler (he was her mentor). He also founded the Professional Tape Reader which Weinstein took over.
Free stuff at http://peterdag.com/ I recommend reading the sector stuff.
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