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Greedy? Now I am getting fearful



December 22, 2009 – Comments (19)

I have used the current rally to correct my (real) portfolios. Most have recovered about 90% (still a 10% loss, but considering what my portfolio has been through, close enough) of their value, and I have been steadily liquidating them and sitting on increasing amounts of cash. Course, problem with this strategy is that I will miss out on any more equity rallies, and this situation could last for quite a while. I remember the last time I did this a few years ago: I missed out on a lot of fun, but I did not suffer when the markets retreated.

However, I have joined those Fool writers who are expecting a rather substantial pullback. At this point, SPY, QQQQ, and DIA are giving me a nosebleed.  I just don't know when it will happen.

19 Comments – Post Your Own

#1) On December 22, 2009 at 8:49 PM, AvianFlu (< 20) wrote:

With the debasing of currency that is going on that mountain of cash won't be able to buy much. Better start hedging for inflation now!

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#2) On December 22, 2009 at 11:01 PM, uclayoda87 (28.77) wrote:

Consider gradually getting into CEF following the recent gold and silver correction for money you don't want to invest back in the market soon.

I have also been building a cash reserve with the expectation of a significant correction beginning in mid Januaray 2010.  This is of course speculation but if you are interested in the origins of this idea, then I would refer you to the blog posts:  Fractals!! and The Long View - Q&A.

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#3) On December 22, 2009 at 11:45 PM, SamTheHobbit (29.61) wrote:

Binve's blog The Long View had a good analysis of risk that I would also recommend.  Ironic that you can get better financial information from an engineer than an ecomomist.

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#4) On December 22, 2009 at 11:48 PM, TMFAleph1 (93.09) wrote:

You're wise to be cautious at this time. If one goes by the cyclically-adjusted P/E multiple -- one of the only truly useful measures of market valuation -- the S&P 500 is currently about 25% overvalued (the cyclically-adjusted P/E was originally developed by Ben Graham and is calculated based on average inflation-adjusted earnings over the prior ten-year period).

As such, one should be underweight U.S. stocks; cash is not the worst option in the short-term -- there are certainly worse places to put your money right now -- but there are also more attractive choices. The two that stand out most prominently, to my mind, are "high quality" U.S. stocks and international stocks.

I'm publishing an article tomorrow on that looks at the performance of equities over the past decade and the outlook for the next decade. If you'd like to be alerted when it appears, you can follow me on Twitter at The_Long_Run.


Alex Dumortier, CFA



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#5) On December 22, 2009 at 11:49 PM, FreeMortal (28.76) wrote:

With increasing financial instability around the world, another bomb could cause a run on the dollar (which would hurt stocks, if only temporarily).  Alternatively, a deflation scare could be entirely homegrown.  For example, we hear complaints that the TARP money is not being lent out as intended.  One reason for this is because the banks are all too aware of the $1 trillion option ARM time bomb set to go off in 2010.  The banks want to be flush with dollars when the next crisis once again makes cash king. 

I've moved quite a bit of my portfolio to cash for this reason.  If I'm wrong, (and I hope I am) then my remaining stock and commodity positions will keep climbing while inflation nibbles away at my cash for 6 months.  If I'm right, then I have a great opportunity to bring down the dollar cost average of my stocks.  Either way there is an opportunity cost, but thats the premium I'm willing to pay for a higher level of safety.

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#6) On December 23, 2009 at 12:28 AM, DarthMaul09 (29.07) wrote:

The rise in the US dollar index is not likely to be a long-term trend, so at some point you will need to move from your dollar position into something else.  A quote from my blog

"If the belief in the US dollars real strength is a short-term illusion, then the US dollar index will likely be volatile over the next few months as investors move quickly in and out of the dollar to other asset classes, which they would view as a safer store of real value.  The dollar becomes the hot potato in the market, which investor need to hold temporarily, but only out of necessity.

Gold speculation versus the Treasury bond trap, pick your poison.

There appears to be gold speculation by individuals and probable market manipulation in the short term by the IMF and other deep pockets, but this may be less of a problem in the future as China becomes a bigger player, buffering the volatility of gold prices and stabilizing demand."

My views have not changed.  My recent metals and mining purchases have hurt me in the last few weeks, but I suspect that the commodity bull run will continue next year as additional QE before the 2010 election is deemed necessary by our incompetent representatives in Congress.

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#7) On December 23, 2009 at 12:54 AM, awallejr (56.95) wrote:

If you are gun shy, you are gun shy; the stock market is not for you then.  Staying cash is the worse thing to do in my opinion unless you are simply accumulating dollars to invest elsewhere.  Following Binve's charts probably has cost people some of the greatest investing opportunities of a lifetime and there are still plenty of places to invest.  Selectivity is the key, not just dumping into index funds.

Since March I have touted the energy/commodity/high dividend thesis with tremendous success.  There is no reason to change from a long term perspective except finding those high divdidend yielders are becoming scarcer due to their doubling to tripling.

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#8) On December 23, 2009 at 1:28 AM, HarryCaraysGhost (77.10) wrote:

"Socialism is the philosphy of failure,

The creed of ignorance, and the gospel of envy.

It's inherant virtue is the equal sharing of misery"

Winston Churchill

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#9) On December 23, 2009 at 1:38 AM, awallejr (56.95) wrote:

And anti-socialism is the mantra of the few to keep the majority in check I suppose ;p

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#10) On December 23, 2009 at 3:53 AM, Donnernv (< 20) wrote:

NQU, CEF.  Fifty-halfty.  Until the firing stops.

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#11) On December 23, 2009 at 3:56 AM, Donnernv (< 20) wrote:

Or consider DonnerDiv for a more nuanced approach.

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#12) On December 23, 2009 at 8:58 AM, SolarisKing (< 20) wrote:

 For msftgev (97.29)

 Socialism refers to various theories of economic organization advocating public or direct worker ownership and administration of the means of production and allocation of resources, and a society characterized by equal access to resources for all individuals with a method of compensation based on the amount of labor expended.

A descendant of the famous aristocratic Spencer family,[1] Winston Leonard Spencer-Churchill, like his father, used the surname Churchill in public life.[2] His ancestor George Spencer had changed his surname to Spencer-Churchill in 1817 when he became Duke of Marlborough, to highlight his descent from John Churchill, 1st Duke of Marlborough. Winston's father, Lord Randolph Churchill, the third son of John Spencer-Churchill, 7th Duke of Marlborough, was a politician, while his mother, Lady Randolph Churchill (née Jennie Jerome) was the daughter of American millionaire Leonard Jerome.


So W. Churchill was born a king (duke) and a multimillionaire. Now i am a Churchill fan, as far as it goes, but he knew nothing of fairness, or equal access to resources.

The problem is that the entrenched aristocracy of the capitalist (amongst others) means of production until recently owened all means of media and always twitst the term socialism to mean something crazy.

And another problem is that by the time an aristocracy gets bad enough to cause a revolution, the peasants overcompensate. Then, since the peasants have been kept ignorant of the truth of the 'current working system' they don't have a firm grasp on the problems and solutions
   Add that to the fact that the aristocracy of the rest of the world plans to 'teach a lesson' to the peasant socialist by refusing to play fair.  . .

But in the first place, THERE IS NO SUCH THING AS CAPITALISM IN THE WORLD TODAY. There is no 'free market'. The market is a huge net of aristocratic oligarchic fiefdoms of subsidy (ironically, the basic theory behind subsidies is a socialist on of keeping the people fed, etc.
   If the rich were aloud to lose, i would be a little less critical of modern american capitalism.

Calvin may have said that god gave inheritance purposfully to his favorites before birth, but Jesus said different.

Jerryguru69, perhaps you should set a portion into play (carefully) in looking for just a few best buys. Some fools believe natural gas is a good long term play, and there are still a few good dividend companies with long term growth potential. Just enough to still be in the market.
   Use this time to test your ability to be patient, and picky. instead of sitting out entirely.    ?

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#13) On December 23, 2009 at 9:11 AM, russiangambit (28.97) wrote:

> But in the first place, THERE IS NO SUCH THING AS CAPITALISM IN THE WORLD TODAY. There is no 'free market'. The market is a huge net of aristocratic oligarchic fiefdoms of subsidy (ironically, the basic theory behind subsidies is a socialist on of keeping the people fed, etc.
   If the rich were aloud to lose, i would be a little less critical of modern american capitalism.

Yes, capitalism today is socialism for the rich, powerful  and connected. Everybody else gets a free market treatment. 

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#14) On December 23, 2009 at 9:14 AM, russiangambit (28.97) wrote:

Jerry, I would by commoditie4s and defensive blue chips.As for shorting this market, will see how it behaves in January?

I am waiting for jitters to start about the end of MBS purchases in March. That is a ton of liquidity that is going to dissapear. Unless FED chickens out and extends it. The market is not worried about it yet, probably because FED can always change rules at the last minute because FED doesn't need congressional approval to spend some more of our money.

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#15) On December 23, 2009 at 9:54 PM, jerryguru69 (98.00) wrote:


'Staying cash is the worse thing to do in my opinion unless you are simply accumulating dollars to invest elsewhere.'

Yeah. Waiting for stocks to go on sale again.


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#16) On December 23, 2009 at 10:40 PM, awallejr (56.95) wrote:

Rather than waiting for something to happen which might not, why not simply price average in a little bit per month?  There are plenty quality stocks to do this with.

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#17) On December 23, 2009 at 10:51 PM, starbucks4ever (89.25) wrote:

Those high valuations have a way of getting higher still before crashing. They say 25x earnings is too expensive. True enough. But would it have been a smart move to sell in 1996? I'm afraid not. The market went as high as 44x earnings, and there was no QE back then.

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#18) On December 24, 2009 at 3:13 PM, FreeMortal (28.76) wrote:

I'm in the (life) boat with jerryguru69.

If stocks are still climbing by next April, I can't imagine the Fed not tightening monetary policy.  In that case, I get a great entry point.  If stocks falter or move sideways, then I can cost average in over next year.  Either way, the speed bumps appear rather unavoidable.

I sold some retail and tech, and I'm now almost 20% cash.  The rest (in order of proportion) is commodities, emerging markets, staples, and a little tech.


But hey, if I'm wrong, feel free to set me straight.

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#19) On December 27, 2009 at 7:49 AM, paperpump wrote:

i think a lot of these ideas sound appealing.. with that being said, the best option would be one that takes all of these perspectives into account in that one is exposed to the least amount of risk. While making gains in uncertain times is sexy, the downsides of losing money IMO, NEVER warrants taking risk. If a portfolio loses 95% of its value, it takes 1,950% JUST TO GET BACK TO WHERE YOU STARTED). Risks we are currently facing.. 

--cap and trade uncertainty

--MBS' purchases ending

--additional stimulus prior to election

--commercial real estate meltdown, ARM "time bomb" 

--rise in interest rates


inflation (only a couple ppl have mentioned investing abroad. much of the recent run up imo is canceled out by dollar devaluation)

markets do however act irrationally. in the late 60's edition of the intelligent investor, ben graham cited the markets were probably over-valued and that it might be a good time to be cautious, then markets continued to rally. 

In these times, i like 20-25% commodities, precious metals (due to QE and unprecedented inflation risk), 50% equities (preferably in canada (will do well in times of inflation bc of their commodity driven economy) or elsewhere unless in blue chips, attractive growth stocks or dividend stocks), and then the remainder in debt securities and/or inflation protected equities such as utilities (they are protected by law to make a profit and thus while struggling in the beginning of inlationary periods tend to do well. tips, while better than regular treasuries, are not such a great choice as cpi #'s are cooked.) brazillian bonds are currently yielding 8.75% (though you'll face a foreign investment tax of 2%).

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