Top 10 Biggest Percent Moves
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I will say today really stunk for us as we did not participate - since we are so heavy in cash and our short exposure ripped us up. Every tick up this afternoon I thought of a reader's comment last week who wrote "why don't you just stay in your Ultra Short positions?" Some of them were down 25-35% today, but of course everything is more simple to analyze in hindsight. Sitting in them until 3:59 PM yesterday would of been nice in hindsight but I truly thought that Oct 10th reversal, the huge rally that following Monday and then retest a few days later was "the bottom" as we were so historically oversold. But history has meant nothing this year.
The irony of the stock market is timing. 1 week ago we entered Monday cautious but relatively bullish because of that "double bottom" I thought had formed the week before - I was not willing to go crazy on the long side but had 1/3rd cash with very little short exposure. That killed us last week as the market tanked and our 'safety stocks' (esp healthcare) were roiled. Now if I had that same exact exposure from last week (little short, good cash, and the rest long), this week we'd of participated nicely today. But our positioning today (substantial short, substantial cash, minimum long) was better suited to last week, not this week. But that's the bigger point here - this has become a day traders market - there is no investing here. The allocation of "long/short/cash" should not mean EVERYTHING - but that is all that matters now. Not the individual companies. Everything is a massive move to the up or down, by the minute or hour. That's not investing so until we get back to an investing environment it's simply hard to participate or put money into the market; it has become an unplayable market for anyone with a holding period even of "weeks" not to mention crazy time frames like "months" or dare I say it "quarters". Unfortunately that will drive out most investors and will leave the market to the gambling types - which I suppose is appropriate in a way. Even some of the more aggressive hedge funds have effectively "fled" with incredibly high cash positions. Because it's simply become a casino with no sense or advantage for anyone unless you hold positions for minutes or at most an hour or three.
We have become numb to 4% moves up or down - and intraday swings of 8-15% up and down within a day. It's now been a month since we've had more 1 up day in a row, and two months since we've had more than 2 up days in a row. The violence of the moves is awful and frankly the action in individual stocks, at least those of a "growth" nature that I follow, is far worse than the indices. It would be much healthier to put together some 1-2% type of up days in consecutive nature rather than 10% up, 7% down, 5% down, 6% down, 6% up, etc.
Frankly if someone said we have a two week rally ahead of us I would not even know which stocks to pick for that rally anymore, because who knows what will participate and what won't. Everything you've learned from 10-15 years has become a moot point and useless in this market. I assume the most beaten would rally the most but if you bought the most beaten anytime in the past 2 months you had a 90%+ chance of losing 15-30% within days if not hours. We are simply detached from any state that has a precedent and the action is so random. So for the most part I'll just stick with index ETFs if indeed any rally is born and make "directional bets" (see the short/long/cash discussion above) - but that's not a strong suit. If it is your strong suit congratulations because you have the market of your dreams - but for the other 98% of us, this is a foreign being. I've sat here the last three weeks reading earning reports every night and asking "why?" "none of it matters anymore". Whatever this market has become is not something I understand or have ever seen or suits someone who tries to pick stocks based on their business and valuations.
6 comments:
Mark,
This chart is a real eye opener. I wonder if investors in the 30s had a lot of the same reaction to the market then as we are having now.
*I've sat here the last three weeks reading earning reports every night and asking "why?" "none of it matters anymore". *
It will matter eventually, have patience. The market is a voting machine in the short term but a weighting machine in the long term.
I did add a couple of indices of the beaten down variety on the long side last week - RSX and EWY, but most of the portfolio is still in individual stocks.
While I fully share your analysis and reading of the situation I am mananging to survive 2008 with a relatively simple strategey. Let's use the Positive Black Swan metaphor, 80% cash and 20% very high risk strategy (damn it, even if you lose the 20% you will be well ahead of the market this year!).
What is left is to choose the risky indexes, I settled on double shorts and longs as needed. When everybody is in flight you double long and when everybody is in love you double short.
What to short and long? I like emerging markets/japan/china/HK (but use others incuding oil/miners and many others as needed).
Timing? Of course the key is timing, make sure the herd is heading one way before you choose the direction (no need to move ahead of the herd, the herd is large/noisey and noticable...).
May I add, I rode every cycle with no worse than 0% return this year (at the absolute worst days)but most days I am in 20-40% return range but still shor tof my 50% objective.
I know this is not classic investing, but it is not classic time either:-)
Mark, ive learned to be a fundies guy, but its useless here. The 5 min chart on the index trades like a daily chart in terms how how fast they move! And thats exactly what the VIX is saying. Theoretically speaking, its the implied vol (im sure you know this, but for your other readers) of the 30 day S&P option. when its at 80, it literally means, that the market is moving at speeds that could send the market up or down 80% in 1 month (22 trading days)!!!
This market isnt for buy and hold, and sentiment is all over... buy when 60 is oversold, and sell when its overbought.. Amazingly, that could mean 30% moves in some stocks!
For figuring out what works when the market rallies... ETFs seem to be the way to go.. cant beat em - join em.
I don't mean to gripe, but the vix at 80 doesn't imply a move of 80% in a month at all. It means that based on a normality assumption of returns (and a clearly false assumption at that), that 68% probability that returns will fall within +/- 80% annualized, or ~20% (80% vol over a 20 day period) and 95% of returns within 40% for this month.
Insane vol, but by no means 80% expected change.
Mark, I think the takeaway here is when timing and long/cash/short is everything, then you need to lower your tracking error and look more like a normal 100% fund and track the benchmark a bit closer. Have faith in the stock picking, it will matter soon enough. Love your stuff.
Colin, you're technically correct. But what does 80% annualized vol mean? does it mean the market is pricing in a 80% move? and the vol on the VIX is a 30 day im vol, not an annual.
A way to interpret it is, that the market is moving (both up and down) at speeds which if it was in a straight line, would send the market either up or down 80%. This is more intuitive to a bi-nomial type pricing model where an up/down move in each time step is defined by the 80%.
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