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turdburglar (41.61)

Stock selloff seems knee-jerky

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8

August 08, 2011 – Comments (8) | RELATED TICKERS: CSCO , COP , UPS

Why are we selling our stocks today?  Because the US Treasury bonds got downgraded by S&P - yes, the same S&P that said a big pile of subprime mortgages was AAA just a few years ago.

So when we sell our stocks because we're afraid of that S&P downgrade, what do we all pile into?  Treasuries - yes, the same treasuries that just got downgraded.

I'm not saying all of this stuff bodes well for the economy, but to me that trade doesn't seem rational. 

Think about it - if the dollar collapses what do you want to own - stocks or bonds?  And if you aren't thinking dollar collapse, then what are you thinking about in regards to this downgrade?

I'm calling bearsh*t on this selloff today.  I don't think that S&P downgrade means much.  It's overdone.

Buy stocks that you want to own 5 years from now and you can get them for 10-20% less than you could a week or two ago.  If you like them then, I see no reason why you shouldn't like them now.

8 Comments – Post Your Own

#1) On August 08, 2011 at 2:47 PM, Jawa157 (22.06) wrote:

I agree completely.

I think that the main reason people are selling is because all of this brings back bad memories from 2008/2009.  I don't pretend to know when we will hit bottom but I will be cost averaging the entire time. I like all of the stocks that I currently own and I like them even better at these prices.

I think this will play out like many other disator senarios, the recession, the deep water horizon, the earthquake in Japan, eventually the market will turn around and peole will reliave the insane valuations of some of these companies and start buying. I don't know if we will be back to these levels in a year or not, but I do believe that this will pass.

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#2) On August 08, 2011 at 2:49 PM, Jawa157 (22.06) wrote:

Sorry about the spelling...

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#3) On August 08, 2011 at 2:51 PM, davejh23 (< 20) wrote:

I don't know.  It's hard to call this "knee-jerky" when stocks were already tanking before the downgrade was announced.  The announcement just amplified the existing trend.  I agree that the downgrade doesn't mean much...most investors weren't shocked...the more typical response was: "It's about time!"  If a QE3 announcement follows this week, I wouldn't be suprised if it was the Fed that asked for the downgrade.

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#4) On August 08, 2011 at 2:58 PM, davejh23 (< 20) wrote:

In addition, the market was already at a tipping point...margin useage near all-time highs & mutual fund cash levels at all time lows.  In this type of situation, it doesn't matter if earnings come in good, the economy is booming, etc...  When any negative catalyst comes along, fear feeds on itself...mutual funds are forced to sell, fear increases, other investors sell, fear increases, mutual funds are forced to sell more, etc...  No matter how much you like a company, and how strong that company is, it's stock can tank for far longer than you might think in this type of situation.

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#5) On August 08, 2011 at 3:05 PM, Borbality (45.38) wrote:

I agree (and can only hope we're right). Seems like people (or institutions and hedge funds) are just plain spooked in general. I need an education on this, but I don't see how a U.S. credit downgrade will affect earnings of companies like GOOG and AAPL. Hopefully we'll see some commentary about that sort of thing.

 and yes it's almost comical (if I wasn't watching my brokerage accounts dwindle so quickly) how bonds are rallying after the downgrade. 

 It seems there's just is an overall panic that the great, over optimistic rally of 2009-2010 perhaps got way too far ahead of itself. however, even at the top of that, the market didn't seem to be super overpriced (circa early 2000s tech bubble), and earnings were coming in pretty darn good.

 I guess I just don't see the catalyst for this major selloff being nearly as serious or warranted as in 2008,  but then again I guess we're sort of just living the aftermath of that. 

 What I really regret is not waiting for a time like this to start investing my real cash.  I have a more than 50% cash cushion, which must seem very conservative to many on this site (especially considering i'm only 27), but I figured we'd see a crash like this in the next few years anyway. i came into some cash after the big rally, and figured we were a little overheated. I still put in quite a bit more though.

 Now that it has come, or is coming, I'm pretty much panicking (although idly) even though I know now will be a good time to deploy more of that cash. Easier said than done, I guess.   Putting in a couple hundred each month isn't going to make up for the "correction."   

 

Sorry to ramble. Didn't want to start my own blog on this.  

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#6) On August 08, 2011 at 3:06 PM, turdburglar (41.61) wrote:

dave - I think you're probably right about "forced to sell" in situation where the market drops steeply it tends to feed on itself.  But that aside I haven't really seen anything that says it is time to sell for normal investors.  I'll give you that it was time to sell a couple of weeks ago (20/20 hindsight), but at this point I think it is probably best just to ride it out or deploy some of your cash if you are lucky enough to have some around.  The best time to buy is when someone else is forced to sell.

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#7) On August 08, 2011 at 3:06 PM, Borbality (45.38) wrote:

good points davejh23

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#8) On August 08, 2011 at 3:51 PM, davejh23 (< 20) wrote:

"I think it is probably best just to ride it out or deploy some of your cash if you are lucky enough to have some around.  The best time to buy is when someone else is forced to sell."

I think this could be a good opportunity to average into solid dividend stocks.  Just because of the uncertainty, I wouldn't look to jump into growth stocks, no matter how compelling the story.  Of course, my core portfolio is all dividend stocks...it's just nice to see yields increasing.

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