Tuesday, November 18, 2008

Shaken, Not stirred.


by John Audubon
item #: 11726055A


Yesterday I conquered the leaves at my home. When armed with a back pack leaf blower, it was easier than had I had a rake as my weapon. We lit them off in the cool evening. But after 3 hours, I was tired of constant motion between blowing and raking, I slept very soundly. I'm pleasantly sore this morning.

I turned on the TV at a.m. :and saw a fund manager (Invesco) stating emphatically that investors should not let themselves be shaken out of this market. I was still half asleep--so much so that I managed to make coffee without the coffee. As the maker started its brewing cycle, it occurred to me that I had no memory of putting in the grounds....reset. Start over.

The picture of the crane looming over the poor hapless reptile reminds me of how the current market is looming over investors. While I felt somewhat prepared for the unfolding of events--and even had conviction about the nature and direction of those events--now that they have unfolded, I realize that I underestimated the magnitude.

Rev Shark (Jim dePorre) on Real Money often says that markets go up further than you think, and they come down further than you think. That statement has been true in spades on both sides of the boom/bust. To be fair, we've not seen the end of the bust. And though I've heard it, I cannot say that I've internalized it well. Though I've had some choice short positions, I've not held onto them well. Those robust bear market rallies are very tempering!

To say that these markets are unsettling is an understatement. I admire folks who can 'trade' them. Other than very small exposures for some exposure to market direction (short/long), I have neither the experience nor the temperament to 'trade' this environment with any skill or confidence.

But to get back to the comment of "investors should not let themselves be shaken out of the market". . . . cutting one's losses is endemic to prudent (and successful) risk management and capital preservation. I find it amazing that the advice given for equities is counter to the advice that one would given in any prudent business decision.

What investors SHOULD get shaken out of is their complacency, and they should not be stirred to act in an environment where uncertainty is high and risk is not easily quantifiable.

3 comments:

nice said...

Another erratic day...

The selling looked weaker today -
almost rote in action.

In fact things looked very very mechanical - most trades were occuring around pivots or- technical areas - with less evidence of accumulation or distribution.

Just a game tossing things back and forth.

We seem to be on a buyer's strike -- or perhaps all the buyers are camped out at lower levels??

As the rule goes: the market goes to where the 'book' is the heaviest.

What caught my attention today was the almost unanimous view by the technical gurus' that we must go lower now (this is their new mantra after they were all frustrated or proven wrong with their recent bottoming calls)

Gartman was harping on the same thing today... we must go lower
Maybe - but right away?

Who knows maybe the bulls can muster some strength here and paint a nice picture for these TA types to chase??

--

One thing I also found odd was that Paulson kept saying that 'the financial system was saved - but the economy was getting weaker'

Every time he said 'the financial system was saved' Citi and the Lifecos would go lower and lower...LOL

Even more odd, the economically weak things like the Nikkei, Shanghai and the Shipping Index... were showing modest signs of relative strength latetly..

Keep your eyes on the ball..

nice

jobuck said...

Leisa,

Great post, and thanks for the link to the Oaktree client letter.

In order to avoid the fate of the little reptile in the picture, we're re-examining everything regarding our finances. We've fired our hedgefund (-40%+ ytd) and begun a search for a good money manager/financial planner.

We're already much more liquid than we've ever been. I'm proud to say that the deferred comp portfolio I set up for Mrs. Jobuck held up better than most of the pro portfolios I read about this past year, tho we've sold that down to about 45% cash, too.

We've hired a good estate attorney (long overdue) and we're shopping for a new CPA.

In many ways, I feel that we have run out of a storm-damaged house to make repairs and batten down the windows during the eye of a hurricane. But there is a clarity that comes along with the urgency.

As Marks put it in his Oaktree letter, "widespread disregard for risk creates great risk." Well, we're not disregarding anything anymore.

Please give my regards to my old online pals at Rev's blog. I hope they, and you, are fairing well during these tough times. And way to go with your fitness program! I am inspired! Almost to the point of action, lol.

Best,
Jobuck

Leisa said...

Nice: I'm seeing renewed pessimism by technicians. I suppose that Paulson's financial system saved had as much to do with avoiding a run on the banks and high profile implosions beyond that of Lehman.

I'm also seeing financial statements where corporations had parked their cash in auction rate securities and are recognizing losses on them.

BAC/C are at new, frightening lows. Brings the term 'value trap' down to a whole new level. I still remember Dick Bove peddling this stuff some months ago, babbling on an on about their cash flows not being affected by the writedowns. Never made any sense to me.

Jobuck: I'll relay your salutations. Sound like you've been very busy and constructive in your efforts over these last few months. Congratulations.