A friend pinged me this morning asking/saying we are in a bear market. He then said "now I know why you are not bottoms up." This was a reference to my a being top down manager in which the focus is on the big picture first, then focusing on sectors, countries, market cap, style and a couple of other things before selecting stocks.
It is kind of tough to label, what is now, a single digit correction as a bear market. There was a point last week where the S&P 500 was down double digits but that was just for a couple of hours. While the idea of 10% equals correction and 20% equals bear market seems too simplistic, I would not be surprised to see the market go lower, which has been my thought for this year all along.
In the last six weeks, picking stocks has been very difficult. During periods like this, when nothing is working (BTW the way there is nothing unprecedented here) picking a good company to buy is like swimming upstream. While I haven't tried to find one, I can't imagine that there are too many emerging market stocks up since May 10.
I have been writing about my fondness for Chile as an investment destination for more than a year. There are two catalysts, global demand for copper and systematic public pension contributions going into the stock market every pay day which means constant demand for stocks.
Neither of those catalysts have changed but the stock I own for Chile, Santander Chile (SAN) has gone down 19.5% since May 9 (I chose May 9 instead of the 10th as above because it closed higher on the 9th than the 10th). Assume for a second that I am right about the fundamentals about Chile, that has not mattered. What has mattered is that emerging markets have been sold down and Chile went along for the ride.
To me, this is a big pitfall for relying solely on bottom up stock picking.
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6 comments:
I would argue that bottom up is a better way to create Alpha than top down. However, many investors, particularly individual investors, are not concerned about Alpha but rather focus on beta - whether they realize it or not. Pure bottom up is impotent at managing beta.
IMHO, we actually have been in a secular bear market since the crash in 2000; The run from October 2002 to July 2006 has been a cyclical bull market.
What your friend is seeing is the transition away from the cyclical bull to the cyclical bear.
We're not there yet, but I think you know my views on where we are going.
Agree with Barry. However I see all stops pulled until the election. My plan is to be out of everything but metals and energy by the end of august. To heck with diversification when we are on the precipice of a depression.
You can calculate alpha all day long while you have no value left in dollar denominated assets IMHO.
Uncle Ben is screwed up one side and down the other. He either deals with inflation or craters the RE bubble. And likely both.
They can't inflate forever and delay an inevitable collapse. Ben's Keynesian's model is not appropriate for the current circumstance. Thus they will never get the desired results tweaking the wrong knobs.
Not everyone is a lemming.
I couldn't tell today's CNBC from Comedy Central. Pisani will occupy the fifth stool at the next blue collar commedy tour. Larry: Get her done! Bob: I see some trees in the foreground, but I'm not sure what all that green is at a distance...
DaveB ain't dead yet... so some of you will be disappointed.
DaveB welcome back!
Assuming you turn out to be correct coming out slowly over the next 10% down would work. And god willing you turn out to be wrong, you don't miss a move up, should it come.
Keep in mind that if DaveB is right the market could cut in half so 10% more seems like nothing to me.
I don't agree with him but I don't eliminate as a possiblity either.
The Bear is here. Of course you already know my feelings by now.
Wait until the squeeze starts hitting the West coast and South. It has already started in the heartland (from econoday housing starts report Released on 6/20/06 For May 2006):
"May's strength in starts was primarily in multifamily units which rebounded 19.7 percent while single-family units rose a more moderate 2.1 percent. Regionally, starts were strongest in the West and South, up 15.8 percent and 8.5 percent, respectively. In the Northeast, starts edged up1.7 percent but fell 15.8 percent in the Midwest."
http://www.nasdaq.com/econoday/reports/US/EN/New_York/housing_starts/year/2006/yearly/06/index.html
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