We have heard a few very smart people over the last couple of months say something like this has been the toughest market ever or words to that effect. Well I have heard that said a few times anyway.
In all likelihood it is not the toughest market for at least a couple of reasons.
The first is that the road to this downturn has been very textbook. If you have been reading this site for a while I pretty much spelled out the manner in which this would happen because.... this is what textbook looks like...the yield curve, the problems that stemmed from the yield curve, the signs of excess, the length of the bull market, the slow rolling over that started in October and the parade of very plausible theories about why this time would be different.
It appears as though I might have been right about this but if I do turn out to be right it is because I did not try to figure out why this time would be different. The very textbook nature of this makes it not that tough, IMO.
Another why I don't think this is the toughest market ever is everyone participating in the market knows more than whenever the "last" tough market was. Don't you know more than you did a year ago or seven years ago? I'd like to think I've learned some in that time and you probably would like to think the same.
The last reason why I think this is not the toughest market ever that we are only down 14.9% from the peak last October. All things considered I would rather that 15% went in the other direction and while 15% is more that down a little it may not really be as bad as down a lot, well not yet anyway.
Anyone making comments along the lines of being the toughest ever or worst ever or whatever is speaking hyperbolically and if anything is simply creating the potential for more emotion not less. A few months ago I interviewed the managers of the Nakoma Fund (NARFX) for a TSCM article and one of the guys said that a market like this is when a manager is more likely to add value as opposed to a raging bull market so in a way he is saying that raging bulls are tougher.
I don't know if that sentiment can ring true for a lot of people but I would expect my biggest lag to come the next time we are up 30% in a year. In 1999 the SPX was up 19.6% (plus dividends) with megacaps and tech leading the way. A repeat of 1999 has lag written all over it for anyone who wants to maintain a diversified portfolio. That's not a bad thing per se, just how it works.
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13 comments:
Good points as usual, but the yield curve would have made you bearish much to early as you have admitted in the past.
Additionally predicting or trading the fed has been particularly tough this time around. That said yes I think you are right it is no tougher because it has never been easy. As frustrated as I am with the market it really is not that bad.
seg
I might add another reason why this isn't the toughest market ever, at least for me--the explosion of new products like ETFs that make it easier to access alternative asset classes, both domestically and internationally.
Please tell me the oil of oregano you use and where to get it.
Thanks.
Richard Rifkin
Is there an ETF out yet, Roger, for oil of oregano or do you use a close end fund?
seg, my first reaction when the curve first inverted was to make sure i was underweight financials, but did not reduce equity exposure. in summer 06 we went below the 200 DMA on SPX and I added a little double short that i never sold (until a quick one day trade in jan 08). as we deteriorated some in 2007 i sold a little stock here and there and added a little double short here and there too.
point being i never made a big bet, another point i make repeatedly. i realize you do things differently but i think my approach has less home runs and less backwards Ks, i am happy with the investing equivalent of walks and singles.
we have only bought oil of oregano twice. the first time was maybe four years ago and it came from Trader Joe's. That bottle just ran out this winter and we bought a new from from Frontier Market, which I believe is just a Norther AZ store (one in Prescott and one in Flagstaff?), which was their own brand.
..a market like this is when a manager is more likely to add value as opposed to a raging bull market so in a way he is saying that raging bulls are tougher.
Aye, for 4 years anybody could throw a dart against the wall and look like an all-star. Of course, there's also a few all-star's that either tried to out-smart the bull, or dabbled in financials and home builders a bit too long. Bill Nygren and Ron Muhlenkamp come to mind.
nygren i know about of course but Muhlenkamp i don;t keep tabs on. i didn't he was in the wrong places
I have never thought of a market as being tough. Unforgiving to speculators, yes. Tough for the disciplined, diversified investor, no.
Truth is,I enjoy gyrating markets that are trending down. The angst and panic selling creates some terrific buying opportunities.
The only thing making $ in my accounts are FGOVX & FINPX.
Is it too late to add more $ ?
thanks
Roger,
I did not mean you were performing poorly. Trust me if I thought you were an idiot I would not read your blog (unless of course you could find me some one who was always wrong).
I was trying to point out that it is not always easy. Even your prediction was to early. Although I agree you did not let it hurt your performance.
I do not like this market though as I find myself buying into what I view as a rally in a bear market. We will see.
Roger,
Is there a way to search your archives? I note that there are labels attached to the posts, but I'm unfamiliar with how to actually search for labeled blogs (or better still, key words used in your blogs).
Thanks,
Rick in NY
i did not think you were calling me an idiot, you cited potential issues with what i do so i tried to spell how i attempt to mitigate those issues which, BTW, is what I said i would do long before i took any defensive action. point being i am aware of the short comings of my approach and while cannot guarantee success with them in the future i am trying :->
Rick, re the archives there is a google looking search box at the top of the site, sometimes that works perfectly and sometimes it flounders. the labels are new to blogger (a year maybe?) and so the the labels may not be the ticket.
Although I primarily trade futures, these markets have been absolutely wonderful. I've been in a state of total confusion in regards to the equities, but there have been many slam-dunks in the commodities. I've missed out on many plays in the S&P futures, in fact this morning, just due to the fact that I chickened out at putting on the trade.
Jeff
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