Comments on Fund My Mutual Fund: Bed Bath & Beyond and Tomorrow's Retail Spin

re: BBBY - yes I explained the thinking that would...

2008-04-10T13:08:00.000-04:00

re: BBBY - yes I explained the thinking that would be "proposed" this morning. That the bad news is old news, that in the next 6 months everything will be better. Then 6 months from now when this 5-15% below 2007 levels is actually closer to 20-25% they will say, don't worry about it. :)

As long as you have hope, you can explain away all bad results. I've been writing for a few weeks now that the bull case going forward for the next 12-18 months will be constant "that's the past, look forward". Every inflation number, every labor report, every bad line item will be "the past", and "the future will be better". That will sustain the market. Until one day the amount of bad news is so great, it overwhelms the market. Figuring out when that time is, is impossible - its abstract. We did not suddenly have an avalanche of bad news on Nov 1, 2007 or Jan 1, 2008 but the mood changed 180 degrees from Oct 07 to Nov 07 and from Dec 07 to Jan 08.

So again, explain away all bad news as the past, explain that its all in the stock, and keep buying. When all risk is socialized by the Federal Reserve and savings accounts provide negative returns all this liquidity needs to go somewhere.

re: shorting. In a bull market it is dangerous to short overextended things because they can stay overextended for a long time. Hence I usually sell things way too early in bull markets because they run up much farther than I ever imagine - but thats herd mentality. In bear markets it works better. But as said between 1350-1390 or so we are in limbo. Could go either way, depending on the "faith" of the buyers. No real volume yet. Need volume to make a real move.

I have no idea where the market goes from day to day. It generally does not matter, and guessing it will make one look foolish most of the time. We've been forced to guess a lot because things have been changing 180 degrees every 3rd day for 3 months now, but generally we want to focus on individual stocks - not the market. This market has been so severe and vicious in its changes in direction its forced us to keep guessing on the market as well - simply because when it turns it takes every stock with it. Thats not normally how it works. Actually how the market has acted since Wednesday of last week is more "normal" - some stuff goes up, some stuff down - on its own merits. But now we've been so conditioned to fear 180 swings we take preventative action which is what I am doing. At some point that will be the wrong thing to do, but you never know in advance.

Again, its an art, not a science. When the market begins to systematically reward good fundamentals for more than a 3-7 day period then we can go back to a normal investing environment. Still too early to call that.

Going back to your statement on shorting stocks th...

2008-04-10T12:51:00.000-04:00

Going back to your statement on shorting stocks that you are currently long. I'm shorting some stocks that have excellent fundamentals right now purely in terms of technicals, very overextended. For this strategy to be effective would depend on the type of market (bear, bull). Right now it doesn't feel either. Feels like we are in no mans land. Hard to be bullish when the underlying fundamentals look so grim. Hard to be bearish either as this market keeps rallying on horrid news. I'm still flabbergasted as to how we rallied off that jobs number on Friday. As you said, that worse than expected number is fluffed up by the BLS model. For the immediate term, do you suspect a move up followed by another leg down taking us to new lows? Sideways trading? Or just waiting for the next leg down?

And in shocking news, BBBY is up today despite the...

2008-04-10T12:19:00.000-04:00

And in shocking news, BBBY is up today despite their spectacular guidance. At first I was wondering why it was down after-hours/pre-market trading. Everybody knew the numbers would be bad. But I didn't think it would rally right back to where it was yesterday. Short covering perhaps. I'll never understand the market.

If you read the blog you can see just from my dail...

2008-04-10T10:14:00.000-04:00

If you read the blog you can see just from my daily comments what to short - anything tied to the US consumer. Every 3-5 weeks we get an "early cycle" rebound, and I'd use those opportunities to short individual names

Easy pickings
restaurants without int'l exposure
retailers without int'l exposure
anything tied to conspicious consumption - i.e. Harley Davidson, i.e. anything related to upgrading your home
anything related to auto sales
anything of the airlines in between their "merger" talks
anything in travel industry as Americans pull back
much of the entertainment industry as Americans pull back

Simply put the American consumer is in serious trouble and needs to cut back (not by choice)

You can go back to my fall entries on Coach, Harley Davidson, Ruby Tuesday, Office Depot, Ralph Lauren Polo. Many are down from 40-60% since I said its time to get the hell out of dodge. So if I ran a hedge fund or even a mutual fund I'd go with a long-short hedged strategy - long names I like, short names I've been bearish on since the fall.

That's the medium to long run.

If I had a very short time frame in fact I'd short many of the names very temporarily I am long, since they are overdue for a correction. But again, I run this fund in a conservative manner so I don't buy/sell positions for 3-7 day holds. Since the turnover would be even higher than it is now. I'd be a lot more aggressive in a hedge fund environment...

Yeah Mark. How about you pretend to have a hypoth...

2008-04-09T23:51:00.000-04:00

Yeah Mark. How about you pretend to have a hypothetical hedge fund and post some short ideas for us here. :) You comment about how you wish you were allowed to short individual names, so how about you throw out some names for the rest of us here who aren't unfortunate enough to have a hypothetical mutual fund to run :).

It's a shame that Marketocracy doesn't allow you t...

2008-04-09T21:52:00.000-04:00

It's a shame that Marketocracy doesn't allow you to short stocks because I think you could pick out some good shorts. I haven't shorted a stock in my investing career, but I am starting to get seriously tempted by some of the retail names out there.