Listening to your fear - Part II

Has anyone besides me noticed that a couple of weeks ago, when we were all the most scared (me included), because it looked as if the market was going to keep falling forever, was at the very bottom (at least for now). My bottom was Feb 11.

When all the paid services were telling us how to ride-out the Bear Market that was coming, and about to arrive, it was the bottom. When the news was full of world-economy-collapse articles and debt-will-kill-us articles, it was at the bottom. When all these guys who were short the market suddenly appeared on our board to scare us more, to tell us that their market indicators were saying that the market was going much lower, to make fun of us for being buy-and-hold investors, and to say that we were fools to hold our long stock positions — that was the bottom (for now at least, which is all we can know). By the way, I don’t remember even one of those guys telling us that his market indicators were saying that the market had just hit even a temporary bottom, and was about to turn.

I’m also saying that you should listen to your fear, and when you are really afraid because the market is tanking (at a time when the economy actually isn’t), it’s probably just Mr. Market doing his thing. The decline may be very scary but it doesn’t change the companies that we are investing in. And if, and when, you get so scared that you are seriously considering whether you should go 100% into cash, as those shorts were recommending, it most likely IS just about the bottom.

Please remember that I don’t know where the market is going from here. I’m just making observations.

Saul

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Saul, I got a good laugh out of this same thing when I found myself thinking last week, “How dare everything go up! I still have money I want to reallocate into better investments!”

It is scary to see my portfolio dropping in value. Now I’m annoyed I didn’t finish my research and make purchases before everything started moving up! Not that the opportunities out there are bad. But there is a selfish bit of me that wants to say, “couldn’t we have just one more week of bad news so I can get a few more amazing deals???” :slight_smile:

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Now I’m annoyed I didn’t finish my research and make purchases before everything started moving up!

Hi Othalan, that’s why I try to be 100% invested instead of trying to guess the bottom. With the 2% that I’m up additionally today as I write, I’m up 13% from my bottom in a little over two weeks. That’s more than the average that stocks go up in a year, even counting dividends. I wouldn’t have wanted to miss it. I agree though, there are still stocks that are way, way down from their highs.

Saul

You know, one good thing about my approach to investing is that I usually miss these moments of fear. A couple of weeks ago, about the time of the bottom you’re talking about, I noticed that there was more talk about the stock market than usual and did a check on my portfolio. It had gone up about 3% from the last time I looked.

ThyPeace, perhaps should look more often… but probably not. I bought those stocks so I wouldn’t have to look more frequently.

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Hi Othalan, that’s why I try to be 100% invested instead of trying to guess the bottom.

Saul, I am actually invested 100%, I just had a lot of money to shift around. At the beginning of the year I was invested 80% in mutual funds (index funds following S&P 500 and Russell 2000) and another 10% in stocks which mostly were not good choices. Now I am invested 77% in stocks I have deliberately chosen based on what I have learned here, 23% still in those mutual funds as I did my research.

As a result of all this I am up 9% form my low earlier this month and down only 2% from the beginning of the year! No complaints. Just … hard to see those amazing deals go away!

Looking back, the only thing I would have changed is to have bought larger quantities at a time for stocks I was confident in (SWKS and LGIH, for example). I’ve had too much to learn to make my purchase much faster than I did.

I don’t think you can generalize about fear. There are so many companies whose PEs have now been rising for years unconnected to performance, as has the overall market, riding the Bernanke/Yellen Put. Fear about them is fully justified and optimism is highly misplaced. There are also companies which offer a bargain price in a downturn: fear is unjustified and opportunity exists. An essential time to buy.

I am all in favour of jokes about bottoms (especially ‘short-term bottoms’) because, or even though, I don’t think bottoms are interesting. Price is what is interesting.

Because I think the price of bargains will get much better over the next couple of years, I just love having a lot of cash. Also, I cannot find any bargains at the moment. I am fully subscribed to the ones I want already. The cash quietly waits. The fun will go out of that when we get negative interest-rates; something to remember about insurance companies too.

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Most of the short term forecasting is based on extrapolating what is happening now (more of the same) and predicting reversals from short term data is very difficult if not impossible. You might have noticed that turns are predicted conditionally, “if this happens then the turn might happen.” Not very useful at all.

I’ve been noticing a strong correlation between oil and stock market prices. it seems to me that Mr. Market is looking more at the Fed than at value to drive the market. Oil is tied to banks and it’s the Fed’s job to save those banks should oil default. So I’ve been looking at oil prices as my guide. On January 18 I posted a poll at the METAR board and it pretty much nailed the bottom of oil at $29. Only 6% voted $29 to be the bottom of the oil market, 56% voted no, and 36% voted don’t know.

I liked the chart and in February added two positions to my portfolio and both are up. But I didn’t spend it all, I still have cash for one or two more positions.

My point is that you don’t have to go to the extreme of fear or greed, somewhere in the middle is quite comfortable. The one thing I would certainly advice against is selling on fear alone. If the reason you bought the stock has not changed there is no reason to sell just because you are listening to fear mongers, bear bashers.

Denny Schlesinger

Poll: Is $29 the bottom for oil?
http://discussion.fool.com/poll-is-29-the-bottom-for-oil-3207733…

I liked BKE
http://invest.kleinnet.com/bmw1/stats16/BKE.html
http://discussion.fool.com/fka-bke-32121542.aspx?sort=whole

Oil
Brent: http://www.nasdaq.com/markets/crude-oil-brent.aspx
WTI: http://www.nasdaq.com/markets/crude-oil.aspx

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My bottom was Feb 11

That was the day the S&P and Dow tested the bottom of Jan 19/20 and then finish well off the lows. The next day was a nice up day on decent volume followed by 2 more up days, the third of which was an IBD follow through.

I don’t remember even one of those guys telling us that his market indicators were saying that the market had just hit even a temporary bottom, and was about to turn.

But 3 days later IBD did tell us it was a follow through day :wink: Not long to wait.

Please remember that I don’t know where the market is going from here. I’m just making observations.

And please remember that I know about 1/10th of that!

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re: $BDI

re: AU

Spot on Saul, concur with your findings. http://stockcharts.com/h-sc/ui?s=%24BDI&p=D&yr=0&… Tyme to start buying was on Februrary 19th at the Xover.

Bottomed out. All one had to is follow the charts as was shown when all were in panik mode many many weeks ago if you may recall.

Charts don’t lie. People do.

http://stockcharts.com/h-sc/ui?s=%24BDI&p=D&yr=1&…

Saul sez: Please remember that I don’t know where the market is going from here.… keep watching the chart for a possible headfake.

Quillnpenn -

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Quillpen, Can you please explain why today’s chart that doesn’t lie that is the important one to react to is the Baltic Dry Index, a measure of multiple dry bulk carriers of coal, iron ore, and grain? With all the charts you can create, I’m sure there are conflicting signals.

F1Fun,

"If stuff isn’t moving around the globe by sea, then nobody is buying, no matter how much stuff is being produced due to the industrial over-capacity created by global central banks flood of free money, nor how low prices for it have fallen for what once was being shipped. No buyers means falling prices. No buyers means “Recession”.

Some thinking to ponder.

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- I don’t remember even one of those guys telling us that his market indicators were saying that the market had just hit even a temporary bottom, and was about to turn.

But 3 days later IBD did tell us it was a follow through day :wink: Not long to wait.

But don’t I also remember 2 previous “follow through days” brought up in the last couple months that didn’t work out as planned?

1 out of 3 isn’t a great track record…I hope I do much better than that with my stock picks!

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Hello Saul,

I’ve been reviewing your investor discussion board for about 3 months. I carefully looked over your updated knowledge base and started reviewing the current companies I have been invested with through MFO PRO and MFO. I’ve found it an interesting thought exercise along with enabling me to have another toolkit to analyze other companies outside of the TMF Universe.

The discussions I’ve uncovered going back to your initial thread count have been very interesting and thought provoking. You’re contributions to the Fool universe have been significant along with having your own google search “Saul’s Investing Discussions” continue to trend higher!

The Fool should certainly find a way to give you another lucky charm for you distinguished accomplishments.

Best regards,
Scott

I would go so far to suggest snippets of all these threads could be condensed into an e-book for a great reference! (Hint hint TMF Intern project)

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But don’t I also remember 2 previous “follow through days” brought up in the last couple months that didn’t work out as planned?

There was no plan! It is a signal of a sentiment change and probability change. It shows the institutes are starting to buy instead of sell, that is what changes the probability. It is never a promise, but no bull market has started without a FTD. The other parts of the signals are “market under pressure” and “Market it correct”. These came quickly last time and those that follow were back in cash. More importantly it is a signal that you should start looking at strong growth stocks in good bases and by them as they properly breakout on strong volume. There were no good setups at the last FTD and therefore you would be unlikely to be committing new money. We are still not seeing a lot, but I do see quite a few more than last FTD.

1 out of 3 isn’t a great track record…I hope I do much better than that with my stock picks!

Ah, but do you? And are you judging on a sample of 3. An FTD was also called on 3/11/09, if you had been in cash on their signals and then used the FTD as courage to start buying strong growth stocks, you would have made a mint.

An is 1 out of 3 bad? The idea is that you cut your losses on the 2 bad ones at 6-8% but more than make it up on the 1 good one that goes up 20%-25%. IBD is more conservative looking to cut losses on 3, make up for losses on the 4th and and every now and then hit it big like the Stock Advisor did with Amazon, or maybe a stock that goes up 100% or 200% like Saul finds every now and then.

It’s an approach, but one that is not compatible with this board :wink:

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The Fool should certainly find a way to give you another lucky charm for you distinguished accomplishments.

Hi BizKikr, Thanks so much for your kind words, and welcome to the board.
Saul