If you are struggling in the market don't feel too bad - I keep saying this is a market lacking in any serious logic and very little works for extended periods of times. Many, many (and I mean many) sites/writers I've been reading for years (including the bear of 2000-2002) have similar words to Robert Marcin on Realmoney.com
This is one of the most complicated markets I can remember in my career. Many stocks are down and cheap with solid fundamentals. These usually represent attractive longs. Also, sentiment is a bad as it gets. That also usually means a bottom.
Yet fundamentally, things are deteriorating with the potential to get much worse. The uber bear case has a spreading global recession and still expensive stocks in the case of a global economic meltdown.
Therefore investors are shooting economically shares first and asking questions later. Bullet proof stories or defensive plays, ie expensive stocks are gaining at the expense of cheap ones. That makes life tricky for a deep value guy like myself.
I am limiting my bets in this type of market. I believe that the big bottom will come this fall on a deteriorating economy(no more rebate checks) and negative political sentiment from a democratic administration. In this environment, small/mid caps drop more than large caps, the VIX hits 35, and you hear "it's not too late to sell" form the talking heads on CNBC.
At that point, I hold my nose and buy like crazy and pray I am not too early. Til then I stay more defensive than not.
Position: noneSo if you are struggling you are not alone. I've read the same sentiments countless times. No trend lasts for more than a few days - market down 2.5% Monday, and then up 2.5% Tuesday? Banks great one day, oil great the next? It's so simplistic in the thinking - and its all based on random events of a bipolar nature. Until trends last for more than 3-4 days this market has no place for investors - only traders ....and daytraders at that. Everything now is complete randomness; you ride the trend of the "day" and then get out. Because tomorrow could be 180 degrees the opposite.
Quite possibly the brightest mind of our era is down nearly 20% this month in his mutual fund. Berkshire Hathway is down 25% for the year. Safety stock is just a code word out there.
I remain defensive until something begins to work for more than 5 days in a row. Despite all the end of world talk Monday and yes, we've finally got a bottom in financials Tuesday - we've gone nowhere in the big picture - almost exactly where we left off Friday with a lot of volatility thrown in the mix. I'll keep repeating the mantra - when a sustained move happens we'll miss the beginning of it and catch up later. Until then, there is no reason to get excited by 24, 48, or 72 hour moves no matter how breathless the CNBC anchors become. Someone else can be the hero and "catch the bottom" - many have been trying for 12 months now and constantly blowing up their investors capital.
Tomorrow? Another random 2 sided event - 2nd quarter GDP. Friday? Another random 2 sided event - employment report. Even if I *KNEW* what the numbers were for each, I could not tell you how the knee jerk reaction in this market would be. The world is not changing every 24 hours but you could not tell if you only looked at the stock market. As they say, when in doubt - sit it out. Monday when the market crumbled we were up 0.6%. Yesterday when the market sung alleluiah - we were down 0.8%. So I'd say we are quite perfectly hedged. Yes we're going nowhere fast, but either is this market. We're not going 100% cash, but we're "sitting out" as much as possible until things clear up - whether thats in 24 hours, 2 weeks, or 2 months. Until then, it is just gambling. And you can go to Vegas for better odds. If your time frame is 2 hours or 2 days you will act very differently than I will; but that's not our time frame.Those who actually have their capital left when the market returns to some semblance of normal will prosper. Most others will be sitting on huge losses they just hope to make up. We don't want to be in the latter camp. And that's my strategy at this time in a nutshell, agree or disagree - you will see what I'm thinking and why.
12 comments:
GDP growth was reportedly around 3% for the Second Quarter. Will be interesting to see how the market reacts.
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There is enough data now to conclusively state that second quarter real GDP will post an increase at close to a 3% annual rate.
It has been clear for weeks that the increase would be over 2%. Wall Street is finally getting the message.
The median forecast of Wall Street analysts has risen from 0.5% to 2.0% over the past two weeks, and will probably reach 2.5% by the Thursday release date.
The component trends in the GDP data are very encouraging. All categories except residential construction spending will increase.
Trade is a major factor behind second quarter strength. Net exports will contribute about 1.8% to the overall increase in GDP. Exports are booming, and imports declining. Exports directly create production. Lower imports mean that a higher percentage of consumer spending went to U.S. goods. That too means greater output.
Real PCE will be up at about a 1.8% annual rate. That will add about 1.3% to the GDP gain. The fiscal stimulus is working.
Business investment remains surprisingly strong. Investment in software and equipment will be up modestly. Nonresidential construction will be up at about an 8% annual rate.
Government spending will probably also add to the GDP gain.
Residential construction will likely decline at a 25% annual rate and take about 1% off the GDP change, but the rate of decline is slowing. The recent stabilization in housing starts suggests this category will be near flat in the third quarter.
If inventories add to the GDP gain (and that will happen barring another large decline in total inventories), the GDP increase will be over 3%.
Our early forecast for third quarter real GDP is for an annualized increase near 2.5%. Consumer spending will continue upward at a modest pace, and business investment will be up as well. Net exports will have a smaller impact, but so will residential construction.
The economy is much stronger than widely perceived.
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Is that core or headline GDP
core being ex-rebate check of course.
We just funneled in the equivalent of 4% GDP into the system with the rebate check. I hope its positive GDP or I'll be alarmed since that would mean I'm being too optimistic!
Sounds like you DID nail the exact bottom with your capitulation sell on RIO. It's up nicely today.
shax, I said it did have a potential double bottom forming
Are you ever positive or have something nice to say? I have your fund data that you sent me and your last month is a disaster - but you never say that - just criticize. You have double the loss in 1 month and I only point that out because you mocked me a few months ago by being protective of my capital and saying people only want the maximum long term gain. Well I'm sorry but judging by the Yahoo Finance board for CGM FOcus I can tell you people get really peeved when they lose nearly 20% in a month
I dont remember saying I'm perfect.
I thought he was still profitable on RIO...last time I checked that's good in this bear market
Bill,
I don't mind variant views. Shax has been around 8 months and I don't believe there has been 1 positive comment
He went "all in" fertilizer and coal about 4 weeks ago and I didn't criticize him. But it is quickly forgotten and I get every "error" waved around at me. That's the only reason I point it out. Shax is a risk taker with a great long term record; he trades for himself though. I told him 2 months ago I felt that investors would get mighty antsy if they saw their fund down 15% in a month. He disagreed and says shoot for the long term return. He has a different audience - I am trying to "manage to reality"
Reality being when a manager returns 80% in 2007, the horde doesn't give a damn and gets very mad when when he loses 18% in 1 month in 2008. Thats just human nature. Hence I am conservative and try to pick the fat pitches. Shax will probably have a better long term record but in the ShaxFund he has to have individual who are cool with 20% drawdowns in 1 month. That wont work in hedge fund world and it wont work for most mutual fund investors. He shoots for the fences, I respect that. Its just a stylistic difference and I am just getting tired of 3/4 of a year of implicit remarks that are backhanded.
When he opens the perfect fund that has low turnover, great long term returns, and never loses more than 2% in a month, I'll be there with all my cash to hand it to him. I believe everyone would.
Again, there is a history there - I am open to criticism and never claim to be the best investor in the planet. It might be shocking but I make errors. The horror.
Hi Mark,
I understand your frustration, In the last two three weeks I gave back most of what I made this year. I am a Physician by profession but I manage my family and friends my own portfolios for many years now. I have discovered a couple of things about myself.
1. I am a lousy short-term trader, but I have an excellent investing record in the stock market when I trade intermediate to long term trends.
2. When I am not flexible I lose money cause I am fixated on the thesis. Market does what it wants to, it doesnt care about food shortage or oil demand or that this is the 5th kitchen sink quarter for financials.
3. I can't handle too many stocks.
I can't keep up with news flow, earnings, upgrades downgrades and secondary offerings. I only follow 10 at a time, then keep a watchlist of fundementally sound companies look for entry points.
4. When my stocks thesis is not working I switch to Sector ETF's. I am not in an out of various sectors based on Erin, Maria or Dylan.
5. I have learned in a Bear market to raise cash as I sold a some of all my winners today, I save it for a pullback which doesnt violate the trend.
6. (Most important) Still working on this one: Admit that I was wrong and forgave myself quickly. I can stay up nights rehashing my mistakes.
Q,
I must admit Erin does sway me ;)
Luckily I rarely see her since she is on during the day so it doesnt affect me when its important
Point 6 as you say IS THE MOST IMPORTANT.
Many great traders/investors are only correct 50% of the time. The key is to cut losses quick, and let winners run. People have misperception that great investors are correct 70,80% of the time. Most are not.
My only frustration is watching some incredible earnings be ignored - it means we have the right thesis. The total randomness of this market is useless - much like you I thrive in completely different markets than this... I dont care if the market is up or down, as long as it follows a direction for more than 48 hours! And fundamentals are rewarded. When neither of those conditions apply we have July 2008. And a few other months of the year. Asset allocation is what works in these kind of markets, not stock selection. BUT your asset allocation needs to change 180 degrees from day to day, which is why so many find these markets impossible.
Anyhow it is not always like this and we will return to sensible times again! The key is to have your money with you when we get there :) I'm still having fun because I love the challenge of this market. I just preferred when I was up 20% instead of 11% :)
Off to drink some Kool Aid.
A lot of your stocks rebounded hard today on heavy volume. Would have liked more volume in the coals thogh they were up nice. IMO the Metals lead us down, began with the breakdown on the RIO's of the world which followed copper and Aluminum, read the hardasset investor its an awesome website, great info on metals and other commodities.
I hope this senseless selling of good stocks is over and make sure the kool aid is a Cold One, put some Smirnoff in there, better times ahead.
Agreed: Erin is totally hot.
Quality will rise to the top in the end. I just want to make sure to have our money around when it happens. It could of turned today, last week or in 5 weeks from now. Who knows. We'll only know when we look back in a few months.
It would be nice if it was today ;) The action was very nice in the "good sectors" - now we have to see how they react the next time oil turns. If they all collapse when oil drops $3, then we have really gotten nowhere.
WOW: CLF stock is actually up after its blowout Q
Double take, yeah i'm right its up,
not getting hammered, U mean good news is good news today ;)
*Shax has been around 8 months and I don't believe there has been 1 positive comment*
Oh come on, would I be still here if I didnt value your work?? Here are some positive comments:
- You have good judgement about which sectors are in a bullmarket and which goods are in tight supply/demand situations.
- You work hard to do your due diligence about individual companies
Yes, this month hasnt been good, I am down 15.5% for the month, while you are down only 8.8%, if that gives you some comfort :)
OK, maybe my criticism of your actions hasnt been that constructive lately... I'll try to be more helpful in the future:
While you are demolishing your energy portfolio, the action in the futures pits in crude oil has seen the speculators going NET SHORT crude oil:
http://www.buythebottom.com/cot_charts/crude_oil.html
LOL, So much for Congressidiots blaming "speculators" for the rise in the price of oil.
I follow this market closely and speculators being net short in oil - thats something that hasnt happened since January 2007 when oil went to $51/barrel ... you know where it went afterwards.
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