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16 comments:
A guest on CNBC yesterday, I forget who now, said it's really not necessary to have the big capitulation day that everyone is looking for. His point was that we're all being ground down slowly here and maybe the capitulation selling has just gotten spread out. Interesting but not typical, I guess.
To that point, though, a question--why do you not average into a position in a particular stock, Roger? Is it too cumbersome, given your client base?
Thanks much.
Hey Roger,
As usual, nice post. Several readers have asked before, and I can't really find a direct answer from you on this matter.
How important is dividend yield to your method and do you think dividends in general will be cut a little or a lot? WSJ now shows after tax yield of Wilshire 5000 to be more than a 10Yr treasury. Many value type funds have after tax yields well above treasuries. Isn't this a sign that stocks (in an index of course) are currently priced to be pretty safe for the long term?
Roger, how do you account for "economic model risk"?
You accounted for systemic risk but that is within your current learned Keynsian economic model that has last since the last great depression.
Now that we are entering a new economic phase that will have entirely new base assumptions and theories.
Your investment startegy going forward does not seem to account for this very real risk?
Meaning the risk that much of what you've learned (not everything) is now out the window.
Specifically, that Mordern Portfolio Management Theory is now old century stuff, about to change in a big way.
The Obama Theory. As the polls increase for Obama, so does the downward trend increase for the S&P. If I had to guess, I believe he started to sread his lead during the first week of Sept., just one week before Humpty Dumpty fell off the wall. (18% crash in one week.)Sounds crazy, but maybe the underlying factor why the market crashed and can't get any traction.
BWJR
The strategic model I've developed over the years contains some lessons from the 73-74 bear market and while that model certainly promotes putting money back to work, scaling in to select securities after significant downdrafts, it also requires a pause if market volatility and price moves remain large because this is suggestive of a pattern in which a series of intermediate bottoms ultimately only lead to much lower lows (not 2-5% but 6-20% at a pop); i.e., I've scaled in long by an additional 15% and that will allow me to participate adequately should the market turn up for real but the next 20% is suspended in reserve until I see something that looks more like a sustainable trend up.
Not that I see this situation as '73 really, its a credit and disinflationary trend, not an inflationary oil shock (among other differences), but the pattern is troubling; e.g., if the credit crunch is resolved I think the US will be one of the first to recover and have scaled in accordingly, including some tech and financial names too in anticipation of a new cycle (financial firms that may require bailing out excepted because the terms of bailout require them to repay before they can pay dividends).
But the rest of the world is the greater concern: There is a general absence of institutions and political will requisite to the crisis and if exchangeable currency-rich nations such as Japan and China decide to hunker down rather than engage in the global version of bailout then I think the tail of the economic curve leading to global depression gets much fatter and everyone's market including ours will perforce follow the curve down.
Shorter version: I'm in but on pause.
PS: The more investors who believe spurious explanations for market behavior such as astrology, Superbowl, hemlines, obama, goat entrails, etc. the better: Means there will always be someone to take the other side of my less rational swing trades, Yahweh be praised.
That's The McCain Theory. Obama benefits and McCain loses with a bad economy. But that's more due to the McCain camp flailing during this economic crisis with flip-floppity stances day to day and bizarre shows of bravado like trying to make it seem Johnny Mac was riding on a white horse to save the day in DC with the supremely unpopular $700B No Banker Left Behind deal. He's followed that up with a wild $300B proposed "let's buy up all the bad mortgages" plan and now his "Joe the unlicensed plumber" infatuation. FWIW, Obama's remained consistent in his economic message, while the McCain camp has been grasping at every mavaricky gimmick in the book. Maybe there's no real meat in the Obama economic plan, but he has bred more confidence in hurting people. He speaks of and talks to the "middle class," while McCain has never uttered the words and has no reply except to call him a socialist. There's a wide swath of the Nation that's really hurting right now and unfortunately McCain has never gotten it.
1) Thanks as always for your reasoned, calm views on the markets.
2) Maybe it's time to think about what stocks would be good when (and it is "when" now) Obama wins. Renewables, cleantech, etc. could all take a big jump.
While thinking about this, I discovered WFR. They make silicon wafers and starter substances for solar power. Very low P/E. No debt. Appears very healthy. There are probably many companies like them out there that have had their stock prices decapitated lately.
(I do not own WFR and may or may not buy some.)
I'm starting to think seriously about a list of stocks that are best of breed in their dow segments. I know that Roger cannot recommend specific stocks but you all out there are are educated investor so i am asking for your recommendations. I'li start off -- J$J, mmm, pcp, mo, chv, vrn. I am looking for core long term canidates. Thanks for your contributions.
please do not leave recommendations. that is problem for me and those comment would need to be deleted
"If you can keep your head when all about you are losing theirs, it's just possible you haven't grasped the situation."
Jean Kerr
Meanwhile, I raised rents 5% beginning November 1st and have a waiting list for all properties under management (and direct ownership) in five states. I/we are presently accumulating additional smaller apartment complexes for cash for two reasons: 1. great price due to foreclosures and 2. major apartment REITS are cutting back capital spending by + -30% in 2009 due to credit logjams and, frankly, budget busting on-site management, creating an under supply of rental units in some regions.
Makes the stock market action a lot easier to swallow.
Since an "anonymous" decided to inject politics into the post....
Over lunch a few weeks ago with a Mayor (Democratic/larger suburban city and friend) I was aked whom I was going to vote for.
I replied that I had a problem to resolve. John McCain would be better leading us in a dangerous world, but Barack Obama would allow me to make one hell of a lot more government-funded money with subsidized urban rental programs and other largesse.
He laughed and advised me to go for the money.
Roger:
I would say don't buy just because the market drops 40%. That is a not a safe zone benchmark. If you bought NASDAQ index after it dropped 40% from its peak of 5000, you are still under water.
Let's talk about the DOW. How many more GE's are lurking in the group?
At one time widows and orphan's stocks were yielding 10%. Growth was substituted for yield. Now we have neither. ( only super-rich ex-executives) Perhaps we might look for a bottom when DOW yields are 10% again. I recently viewed a CEF REIT the was yielding 50% and the NAV was -7%. Is that telling me that all assets are worth 'O'!!! That is apparently what the toxic mortages are worth. Pennies on the dollar.
Is this really a good time to buy? Most analysts say “yes, we have reached the bottom”. Others argue this is not going to be the next great depression or the Japan collapse of the 90's.
What “if” this actually happens. How long do you think this can take to rebound?
Let’s put some perspective here.
Jan 05 1990 (Nikkei value at 38,275) – Oct 24 2008 (Nikkei value at 7,649). That is -80.34% negative return. This is, 18 years and counting.
The recovery from the 1929 highs was even longer. For example, the Dow reached a high of 381 on Sep 1 1929, and following the crash it took 25 years to close at the same level on Nov 23 1954.
Nobody knows how long this will last or how bad it can get.
Please use some common sense and remember it can really be bad. It can even be worst that the Great Depression.
Best luck to all.
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