Perspective

Investment Analysis Clubs Saul’s Investing Discussions
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This was about a 2% correction today – a tiny blip, despite how bad it felt.

If we start adding to, e.g., SWKS every time it drops $5, we may have trouble handling the very routine correction event of say a 10% market drop.

And how will we all do if we get a very normal 20% drop?

I have messed up so many different ways – and a big one was mistaking a small drop (such as today) for a large opportunity. It is, in the grand scheme of things, IMO, a small opportunity at best.

From experience, I can tell you that it is a LOT easier to stay sanguine in a 20% correction if you keep a bit of dry powder and buy on very big dips.

I.e., just a suggestion, but maybe hold your fire here until we see a larger drop, just in case?

We live in a funny world, and even a great stock like SWKS could drop to $65 or so – such things really do happen all the time. This is just an example.

So if today was hard for you, maybe think about how you will handle a real drop – a 10 - 20% market correction.

This is not some sort of kooky doomsday idea - this is a normal type of market action. As mentioned above, it helps me a lot to keep some powder dry for such a big drop.

Of course, what you do is up to you. I have just screwed up so many times by treating small declines as big opportunities and then getting spooked when the decline got larger – so I wanted to say something.

Of course, in the end if we get a big drop we should remember that we are investing in great companies that continue to be great (hopefully!). And maybe remind each other of that fact so that we do not panic and sell at a low price.

Rich

CED

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To paraphrase the late Louis Rukeyser’s comments after Black Monday (1987),

Whoever truly loves you with 100% of your money, will still love you with 98% of your money.<>

Run the good race.

bulwnkl

PS INFN was down 12% on no news. For those of you who don’t own it, it’s worth a look. I will pick some up tomorrow.

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I loved Louis so thanks for that reminder of his wisdom.
INFN is my largest holding so I feel like I have been bit in the butt by a snaggled toothed bulldog, but otherwise standing pat with my money in my hand.
Mike

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Of course, in the end if we get a big drop we should remember that we are investing in great companies that continue to be great (hopefully!). And maybe remind each other of that fact so that we do not panic and sell at a low price.

Hi Rich, great post! Thanks,
Saul

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I was down 3%. I am STILL in a portfolio adjustment period and have at the moment 22% cash. Just happens to be. The first three days of the week I invested 2% of the portfolio, and yesterday 1.75%. I will likely buy INFN today. At this time of the year I will keep 4% for my IRA distribution in January so I still have 18% which I will probably divide into tranches to invest either over time or at 5, 10, 15, 20% drops. Won’t save too much for a 20% event.
No hurry.
Appreciate your wise post.

KC

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Rich,

I have screwed it up so bad so often, I am thinking of building a spread sheet using Sauls methods and completely removing the price.

There would simply be a Ypeg ratio line and the over and under on that line would be the buy/sell trigger. Not an automatic of course as you have to actually know the company. But it would help keep me from being confused by facts. Useless facts.

It appears that price information, as well as a lot of other things are as useful as understanding the relationship of the Kardasions to the Jenners.

Cheers
Qazulight

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Great post, got to rec twice. This is nothing and maybe a sale on good companies with good managements and good balance sheets. Can this possibly have anything to do with a potential monumental decision of the Federal Reserve to perchance move from about 0% all the way to maybe 0.25% or so?

Earth shattering, unheard of, the stuff of headlines and history.

Would just caution against value traps (to use the gibberish) like Berkshire and Buffett fave (and someone at TMF fave) —IBM. That turnaround story that never turns around and general piece of garbage Buffett has doubled down on, well

Why Warren Buffett Loves IBM’s Declining Stock Price
Motley Fool? - 1 day ago
I was particularly intrigued by Buffett’s comments on his investment in International Business Machines (NYSE:IBM). IBM stock has performed …

Sure, it’s even cheaper today than yesterday and a lot cheaper than it was a year ago. Oh the excitement it is so much cheaper, hurrah! IBM has already had a huge “correction”.

But there are really good companies out there–might I suggest DOW Chemical I am buying? Actually buying the CEO and chairman, he is thinking and working on an entirely different level, playing chess with checker players. In my opinion. The stock has not been rewarded. Maybe a good sale there.

Great post of the day.

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So if today was hard for you, maybe think about how you will handle a real drop – a 10 - 20% market correction.

If you look at the bigger picture the “tiny blip” (Friday’s losses) is one of several that, like water dripping into a bucket, soon becomes something other than just a few drips. Look over into the bucket and sometimes you’re surprised. Let’s look into the bucket.

We are in “real drop” territory now (a market correction) with the DOW down just over 11% since its high in May.

Dow closing price: 18,312.39 May 19, 2015
Dow closing price: 16,459.75 August 21, 2015

OK, a real correction, but nothing unusual, and many would say overdue. In all likelihood nothing to panic about, but more than a “tiny blip.”

kelbon

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If you look at the bigger picture the “tiny blip” (Friday’s losses)

Just for accuracy, Kelbon, that post was made on Thursday. So it most likely was not referring to Friday’s losses when it talked about a tiny blip.

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Just for accuracy, Kelbon, that post was made on Thursday. So it most likely was not referring to Friday’s losses when it talked about a tiny blip.

Fair enough…

Yet, my broad observation stands. A serious of tiny blips (drips in the bucket) are cumulative, and, be it Thursday, or Friday, the Dow was close to a 10% correction, one way or another.

kelbon

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Yet, my broad observation stands. A serious of tiny blips (drips in the bucket) are cumulative, and, be it Thursday, or Friday, the Dow was close to a 10% correction, one way or another.

Rich didn’t say specifically, but I would guess he was referring to the S&P 500, not the Dow.

SPY was down maybe 5% from its all-time high on Thursday, down 7.5% on Friday. That is “dip” territory, not correction yet. Today the S&P 500 opened in correction mode and now is trying to decide whether to stay there or not.

But regardless: Rich would likely say this is really nothing. This sort of thing is normal. If the long-term average P/E for SPY is 15 or so and we’re at 18 then we should not only be expecting a drop to 15, but a drop to 13, or 12, or even lower. Averages are built on both sides of the midpoint over time.

A drop in the market P/E from 18 to 12 – again, a very normal drop! – would take stocks down 33% on average, with some high-beta stocks seeing drops of 50% or more.

Food for thought.

Rob

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SPY was down maybe 5% from its all-time high on Thursday, down 7.5% on Friday. That is “dip” territory, not correction yet. Today the S&P 500 opened in correction mode and now is trying to decide whether to stay there or not.

I don’t own SPY but do own RSP (Guggenheim S&P 500 Equal Weight ETF)

http://finance.yahoo.com/q?s=RSP

which did something after the open. It dropped over 30% when I looked at Yahoo and I thought it was a crazy mistake on Yahoo. So I tried to log into my TDAmeritrade account only to get an error stating the Service was Unavailable for a few minutes. After a few refreshes, I got the proper login screen and was able to purchase RSP at $56.60 before it came back to reality and is now trading around 74.50

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jdc115,

RSP … dropped over 30%

Tell me about it. Sigh. I saw the quote and thought, what, that can’t be right? It held on and I thought seriously about buying a big position. Then I thought, wait, maybe there is something fundamentally flawed about the ETF that’s just been discovered. So I didn’t have the confidence to buy, but it was good for a quick 40-50% for anyone that was able to get there-- sounds like that includes you. Nice work!

Rob

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My portfolio which includes some of the companies I see being talked about here, represents 75 % of my entire life’s savings.

I was in the market and here at the Motley Fools in 1999, right after selling my business and retiring at age 53.

I made money hand over fist owning the so called Tech Stocks. And then the proverbial “bubble” burst.

We just happened to be on the water in the Sea Of Cortez, west of the Baha Peninsula during part of the drop.

Upon returning home to Boulder Co. the decline was continuing and I was advised to get out of Tech stocks but I kept saying they would come back. I should have listened to my own advice and stayed connected to TMF…But I didn’t. I sold and went to index funds which would never deliver the returns I needed and could have realized if I had stayed cool, not sold anything…I ended up selling my boat,my positions and eating the losses…Turned my assets over to a local “wealth management” firm. They didn’t do very good.

Did some real estate development here in town for awhile. Did 3 remodels and 3 total scrapes. All were high end homes…But the real estate market here in Boulder was reaching the top of it’s own “bubble” which also “burst” so I lost more money.

In June of 2011 I withdrew from the wealth management company and returned to TMF… Not long after doing this, my RB and SA stocks went up and down dramatically during a short lived market burp…This time I did nothing and stayed cool…let the thing run it’s course.

I have done pretty well since then, beating the S&P 500 every yr up to right know… The last few weeks and days of market behavior been getting my attention…Deja vu all over again said Yogi Berra…but this time I feel cool and calm…If we are going to have a significant downturn, then let it happen I am thinking… I’ve got some cash and I can explore some of the companies that are being mentioned here. I can relocate my current portfolio as may seem fit to me. But not in a hurry.
I do have some good companies in my current port, I think…So let the markets do what they will… this has all happened before and I doubt that “this time is different”

I like what I have read on this board and I like Saul’s investing style.
I remember speaking (posting) with you Saul about the company that eventually changed their name to Catamaran. I bought that stock because of your recommendation. I made money and held until they were bought by a larger entity, forget which one.

Frank,

Watching the river flow…“It just keeps rolling along”

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Hey Frank !.. Yeah, you talkin to me ?.. Yeah ! this is Frank talkin to you.

Wadda you want man !

I wanna tell you that I was sittin with my wife watching an episode of CSI New York when a thought came to me.

What thought man ?.. wadda you talkin uhbout ?

I’m talkin uhbout you sayin that you and Linda were cruising the west side if the Baha Peninsula !.. It was the east side man !.. inside the peninsula !

So what Frank !.. get outa my face man.

OK OK,

Yours Truly,
Frank

To those who read the above craziness; Please pardon me,
I have always been an excessively driven perfectionist.

PS After reading A BRIEF HISTORY OF TIME I am comforted to know that Stephen Hawking (who as a suffering human, is a great inspiration to me) believes as I have mused; that the future has already happened, as has the past…I will let you know when I am able to see stock futures :slight_smile: