Today I'm a bit sore from dog transport. Fat puppies in crates make for some heavy lifting! And my lack of mobility (other than crutch maneuvering) has left me in some pretty poor shape overall. So the soreness is of the pleasant type that reminds you that your muscles are there for you to use!
I started reading Active Value Investing--Making Money in Range-Bound Markets. I saw it mentioned in one of John Mauldin's Missives--as the author, VNK, wrote a brief article on it which you can see HERE. I'd really encourage you to read the article.I'm finding the book very insightful. You've heard me say in this space that the conclusions that many have drawn by studying past market downturns relative to this and that and paddy whack suffer from a rather major detriment in that the sample size is too small to draw any meaningful conclusions. I was grateful to see that VNK said as much. You so rarely see someone admit that. His book is data intensive, but not to be snooze inducing in the least, but rather to shine some light on some popular myths (I call them 'stories').
I was particularly interested in his discussion about P/E compression and expansion which he mentions in the reference above. In fact, the Loeb comment "The best stocks always seem expensive to most investors," is still resonating with me--with a sting of shame on my cheeks I might add. I'm not very far into the book, and I'm already moving through an inventory of flags for pages with pithy information that I want to share with you.
See, I want to move from being the Perplexed Investor to The Perspicacious Investor. I'm not in any danger of having to change my title bar anytime soon. At least I have some perspicacity about my biases that stand in the way. That's a step forward!I include the definition not to insult my readers. I remember about 2-3 years ago, Bob Pisani used this word. His fellow anchors (Michelle C-B being one of them) did not know the word. I knew it, and it was the perfect word choice for what he was talking about. They also ribbed him for using it. The English language is much like our brain--we only use a small portion of it and accordingly are robbed of great richness in such underutilization.
I've a to do item to get the weekly sector spreadsheet completed. It will be later today or tomorrow morning--I'll place a note at the top of the blog so that you can see that easily. I regret that I was not very good about putting in the dailies!
As I look around my house, there are so many things requiring my attention. I'm going to have to adopt a 'quadrant' mentality. Meaning so much has piled up, that I'm going to have to do a quadrant or sector approach to keep from being overwhelmed.
So I lift my coffee this morning in a toast to all perspicacious and perspicacious-aspiring investors/traders.
4 comments:
leisa/NG:
bull trap? it's clear both cara and twiggs are leaning that way...
had the radio on saturday and it's just as clear brinker thinks march 10th was the low, we go much higher in 2009...
you could make the argument that both sides are right, depending on the time horizon, but (actual) recommendations to sell the rallies and buy the dips are mutually exclusive...someone is making the wrong call here...
brinker saved me a lot of money in 2000 getting me into cash, and he's been more or less right in his (broad) calls since 1982-> right now, he seems convinced the fed has taken/is taking the right action to
put the economy back on track...he downplays/ignores questions about derivatives/commodities prices...
cara makes a good case for a prolonged recession, although i think his strength lies in trading...
common sense tells me there will be no quick solution to the recession-> where exactly will the money needed for consumer spending come from?
i suppose daytrading would make one the equivalent of an agnostic (and even cara has pretty pared down the alternatives to daytrading or forex), but you really can't help having an opinion on the economy.
thoughts from either of you?
2nd_ave
I heard Brinker's opening commentary and felt heartened -- and suddenly realized that feeling might mean: Possible bull trap ahead! Caution!
And I could be wrong.
I think the first thing to do is to ignore feelings and think. Decide your time horizon. Are your an investor? Or a trader?
Unless you're a trader, I think the "solution" (if we can call it that) is to have a list of stocks that you're hoping to own. If you've set aside cash, pounce when prices are attractive. Of course, sometimes prices become even more "more" attractive after you've bought. Arrrggghhh!
I don't have an answer to what one should do. I'll just tell you what I'm doing: I hang in as best I can. I have found that generally it isn't long after I sell a company that its price seems to turn back up. Or maybe it just seems that way.
Some of the reasons I now hang on: If I sell, where am I going to redeploy the money? Unless I have a company picked out and/or have been yearning to buy, I have a new research hassle ahead of me. In the past I often found myself repurchasing the company I had sold just a few months before -- AND at a higher price plus commissions out and back in. Pretty stupid.
Let's face it: sometimes even quality companies get undeserved punishment.
I should also say that I favor companies with long histories (15 to 20 years or better) of annual dividend increases. Right now some of these good companies have rather good yields thanks to the companies' recent stock price declines. You'd be surprised by how much consolation you can get from (or wring from) watching dividends plop into your account during declines.
Finally, recall that Warren Buffett bought more Wells Fargo when its price declined. The stock price promptly repaid his confidence by declining further.
I'd love to hear what others think about this approach. Even more important, I'd be thrilled to hear of other approaches/better approaches.
~ G/S
PS: A money manager told a group of us that it's best to have a concentrated portfolio -- he thought under 15 was just fine -- and when one has money to invest, buy more of the companies that have recently declined in price.
I will also say that the manager believes one should read annual reports in careful detail -- all the figures and very especially: all the footnotes. When one does this, he says, one sometimes dumps a company. Since I can't really read annual report figures very meaningfully, I try to cover myself via diversification in quality companies.
I'm even beginning to think of buying companies that are at least 60 years old -- AND raise their dividends annually.
An interesting bit of trivia: Coca-Cola sold an average of nine drinks per week in its first year of operation (1886). That's less than 500 drinks that debut year.
Obviously, it would have been a mistake to wait 60 years to buy KO -- another example of why it's so hard/challenging/interesting to figure out where to invest and/or trade.
2nd
Since I'm mostly a trader (and only part time at that), I'm always neutral in terms of whether we are in a bull market or a bear market.
I just always assume we are in a trading market. This works best for me.
I try not to focus too much on calling tops and bottoms - except in the extreme cases like Jan and Mar when I threw in my 2 cents as being good buy points.
Since my time horizons are short - I just continually scale in on weakness and scale out on strength - playing the trading odds that continually recur due to the fact as you aptly put: 'human behavior doesn't change'.
I will note however that if the market is falling very hard - I often don't scale in on weakness - but stand aside until some major major support is at hand.
And if the market is behaving with irrational exuberance - I usually don't scale it all out into strength - but leave a little open and let it run until we get a buying panic or the 'trumpets are blaring'
Other than that I am mostly 'shadowing' the futures and TICKs on a short term basis - using limited TA (a few MA's) - but mostly trading the psychology more than the price itself.
--
As far as the longer term outlook:
I agree with you exactly that "there will be no quick solution"
However where I differ slightly is that I think the recession fears are being overplayed now - and that the banking/financial fears are being underplayed.
The global recession fears IMHO won't play out until later in 2009/2010.
The US banking and real estate mess will drag on though - probably through next decade - IMO
The market will of course - do its own thing - irrelevant of what NG predicts!
But polishing my crystal ball (LOL) I could imagine this:
The market (well at least some markets) could make new highs - even in worsening conditions - this is conceivable.
The catalyst could be: a rising US$, asset allocation (money flooding out of bonds), or a mass short covering as the 'Bet Against The US Trade' gets reversed (before the 'real' decline starts).
Or, it could simply be a continuation of what we have already seen: ie: rising commodities and foreign markets.
(It's possible that the financial planners are trying to create another bubble to counter their 'banking' mess - by enginerring a reverse of 1999).
(In 1999 the US bailed out the rest of the world after the Asian crisis by raising the US dollar to 'buy' the rest of the world - and created a NASDAQ bubble)
(We could see a reverse situation where the planners allow commodities and foreign currencies to keep rising - to buy US assets.)
(In effect they are allowing a commodity bubble - to create wealth - since it is about the only bubble left we haven't had yet)
Then come later 2009/2010 they will prick that bubble.
After all - it has been commodities and foreign markets that have been the 'real' bull markets since 2003 - so if people think the bull is alive - maybe these things just keep going up?
--
NOW, the 3 main things about this market that I observe are:
(ONE) There are extreme forces at work.
At the economic cycle level - there are the 2 major forces of deflation/inflation.
We have a deflation cycle which is winding down - butting up against an inflation cycle which is just starting.
Even more important as 2nd point out, is that we have extreme views among all the guru's and market soothsayers.
In fact - all the guru's and market soothsayers are lined up on oppositie sides of the fence with steadfast opposing views:
(a) DON HAYS, YARDENI, FISHER - benign goldilocks continues unabated
(b) COXE, WEISS and the Hard Asset crew - world famine, wars, shortages, commodities up up up - paper money becoming out of favor etc...
(c) CARA Roubini and others - that think a 1930's situation is unfolding - deflation - down down down
With everyone holding such steadfast views - I can't help but think that the market will continue to do what it has been doing since last August:
(a) Gyrate wildly up and down
1000's of points like a trapped animal - in a wide trading range:
say DOW 11000-15000
(b) Relieve most people of their money...
As, in the end all the guru's will be right - but their timing will be wrong.
If I had to predict anything - all I can predict is Volatility.
(TWO) The second thing about this market that I observe is that:
There is still a ton of money around - and people are still willing to chase prices higher and higher and higher and higher.
When large sectors of the market have no hope - that means everyone must pile into whatever is 'still working'
In effect all the greed gets channeled into a few things (for example POT AGU etc.. recently)
So whatever is hot is always on my trading list - fundamentals be damned.
At the other end of the spectrum - is 'Value'
Personally I think this is a dangerous market for Value - there are 'Value Traps' everywhere - it's too late in the game for value.
IMO excessive liquidity and negative real interest rates have created 'value' - where there is NONE.
(THREE3) The third thing I see - and Leisa has discussed this a lot - is irrationality.
There seems to be a lot of denial.
People will look aside and pretend something is other than it is -
--->they are willing to play along so their 'greed' can be fulfilled.
I must respect this irrationality as a trader.
How else can a stock like BSC go from $100 to $2 in the blink of an eye?
People were 'pretending' things were ok... the market discounted nothing.
The irrationality is also working the other way - with people discounting amazing things into the future:
IPhones, BlackBerry's, coal, oil, corn - the world needs all it can get of these things - there is unlimited demand or limited supply... up up up seemingly
Because of all these irrationalities - I don't trust the markets ability to 'discount' anything anymore.
Plus all the government, Central Bank and sovereign meddling makes discounting questionable IMHO.
Take for example the bond market -
Yields are rising now.
Hays/Fisher says it means the market has already discounted the worst and good times are ahead.
COXE says it is because inflation is ahead.
Maybe they are both wrong - and all it reflects is excessive liquidity - and merely money moving from point A to point B
--
2nd makes a very interesting point though.
All these diverging viewpoints cannot all be right - one of the 'sides' is going to be wrong - therein lies the advantage to taking a 'trading' stance versus 'investing' stance in this market
--> because since one or more of these steadfast market views are going to prove wrong - that group will in time realize they were wrong - and will be forced to liquidate their positions
--> causing big big price shifts among assets
... which the rest of us will be able to profit from.... that's nice!
All of course IMHO....
leisa, NG, G/S- thank you all for weighing in.
2nd_ave
Post a Comment