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bad day on CAPs, worse in my portfolio... buuuutttt....

Recs

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September 01, 2009 – Comments (7)

Well the markets had one of those "flight from risk" days where stocks that have moved up alot, stocks that are considered risky, etc. just get pummeled.  At the high point last week I was up more than 50% from the low point in july in my own portfolio, and some of the names that have run the most recently got just slaughtered.

Oh well, the market is like a team of bipolar monkeys, sometimes the monkeys are "up" and everything goes through the roof, sometimes they are "down" and everything gets killed.  

I just wanted to offer a blog to observe that it is the scary times that create the opportunity for profits, and especially the opportunity for big profits in excess of the market.  

I haven't any idea if the current correction (now about 3.5%) will go deeper, much deeper, or if maybe some surprise in the labor data later this week sends it shooting back up.  rangebound from 980 to 1040?  I have no idea. But I really, really don't think we will approach the march lows again.  I think its a bit of a stretch that we break through the 870-880ish resistance that's held in may and june.  And its not a hunch or a gut feeling, but a comment born of considerable thought analyhsis and reason when I say that I really, really don't think another trip to marchish levels is in the cards. 

But never mind that.  All I want to say is that if the market starts tanking...  this is how money is made.  It isn't a bad thing, no matter how painful it is to look at your account balance shrink.  Its opportunity.  

If the market tanks to say 880, some of your positions will get slaughtered and others may hold up much better.  It gives you a new opportunity to rebalance, to put your eggs in the "best" basket, to wind up ahead of where you are now the next time the market hits this level.  Last time we tanked I sold out of some stocks that had held up, or that I judged just didn't have as much upside as others (sold out of GE for example) and put the money into stocks I judged to have better upside (like BZ for example).

If the market went up 0.1% every day that would be very comforting and pleasant, but it would not ultimately offer as much opportunity as the wild bipolar-monkey induced swings that dominate it now.

When the markets drift lower, short interest tends to rise, cash tends to be raised and put in other investments or on the sidelines.  This creates a built in impetus to send the market back up again at some future date.  Similarly, as markets rise the foundation for a future decline is set.  In 2007 mutual funds were at an all time high level of investment, all time low level of cash reserves, hedge funds weren't that short, etc.  In March 2009 mutual funds were at an all time low, hedgies were all time high levels of short, etc.  Today we aren't likely anywhere near all time record levels of "in", the recession is likely to be declared over fairly soon, all the recent cost cutting is likely to result in an "uppish" earnings cycle, and a repeat of the epic prolonged crash from 2007 to march2009 is just not in the cards. 

But we could go lower, and that creates opportunity.  

Don't get scared, don't start reading Alstry every day and wondering if he is right.  Yahoo will roll out the bearish super-ghouls on Tech Ticker, the headlines will read blood and death, bullish views will get rare...  Thats opportunity.  View it, if we indeed go lower, as an opportunity to put money into stocks you really believe in (and make sure you have a good darn reason to believe they are below fair value), to shift  your portfolio from things that maybe didn't drop into things that maybe did, or that maybe you think have better future prospects.

All of the markets moves are opportunity, but, frankly, its the big dramatic scary moves down that really set the table for good returns.  

good luck everybody

 

 

7 Comments – Post Your Own

#1) On September 02, 2009 at 12:29 AM, awallejr (85.42) wrote:

It isn't as if we weren't expecting a correction.  I kind of was expecting this to happen after Labor day weekend.  I am in the 5%-10% tops correction camp myself and have dry powder ready to deploy over the next month or two. I blogged about how this time around is not the same as what we faced last year.

 

 

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#2) On September 02, 2009 at 2:40 AM, Ozcutty (54.55) wrote:

Me too, thinking 10% ish, then 3rd qtr results will send us back up

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#3) On September 02, 2009 at 11:52 AM, checklist34 (99.70) wrote:

I clearly suck at predicting market moves, esp in the short term, but I personally think that 10% from recent highs may well be as bad as it gets.  And I wouldn't be surprised if it doesn't tank that much. 

Frankly, I think Cramer may be onto something when he hypothesizes that the market may be back to "business as usual" and wild shrieking crashes and wild manic surges may be more in the rear view mirror than out the windshield.  That is a change that I could welcome.

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#4) On September 02, 2009 at 11:24 PM, rexlove (99.45) wrote:

I've sold some of my riskier high-beta stocks and have about 30% in cash ready to deploy. I kept all my more conservative high-yielding stocks. Waiting for that 5-10% drop also.

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#5) On September 05, 2009 at 3:27 PM, dragonLZ (99.58) wrote:

Here is my prediction from the other day:

#22) On September 03, 2009 at 10:25 PM, dragonLZ (97.90) wrote:

IMO, market will be higher at the end of September than it is now. I know it sounds stupid (after only 4 days in red), but I think today was the first day of the new run up. I don't think it's gonna be a huge run, but a nice one (Disclaimer: I'm no expert).

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#6) On September 05, 2009 at 3:32 PM, dragonLZ (99.58) wrote:

p.s. And my prediction mentioned in the previous comment is just a continuation of the prediction from here.

So far so good...

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#7) On September 15, 2009 at 12:26 AM, checklist34 (99.70) wrote:

 

this is a test, this is only a test.  

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