What the heck’s going on in the market?

What the heck’s going on in the market?

Most of my good companies, which for the most part have been announcing nothing but good news, even very good news, are selling off with the rest of the market.

Why is this happening?

Who knows? It happens now and then. I personally believe the risk of a nuclear war with Russia over the Ukraine approaches 0%, and if there was one, it wouldn’t matter what stocks we had anyway because we, and all the companies, would be obliterated. If you have another good reason for the sell-off, please tell me.

What did I do to prepare for it?

I sold off all the extended stocks with PE’s way out there, which had a long way to fall (3D printing, Z, etc). Almost all my stocks, and certainly all my large positions, have PE’s of about 30 or less (except SZYM which is a medium position at present, and PRLB and AEYE which are a small positions). They are all growing nicely and I feel the risk of total collapse of these companies is negligible.

What did I do in response to the sell-off?

Bought more of my stocks that had fallen a lot for preposterous reasons or no reasons at all.

What do I think about this year so far?

It’s been a tough year. Small Cap stocks are down about 7-8% or so on the year, from what I’ve read. It’s a year to test your mettle as an investor. There has been NO euphoria in the market and NOTHING to suggest an overall market top, but guessing the market is certainly not my specialty.

Good luck to us all for the rest of the year!

Saul

For FAQ’s and Knowledgebase
please go to Post #3325

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Hi Saul,

What I’ve noticed is that people are continuously worried about what will happen with the markets, regardless of where the market is and why it is there (although it’s hard to say why).

And while I cannot say with precision that bear markets don’t last long at all, I can say that they do not last forever (a hell of a lot of small caps are deeply mired in a bear market).

So I look at what is happening with glee as our companies get butchered so that I can buy some more of my favorites, some of which are discussed on this board (I really like Ubiquity Networks, and it is one of the few companies in my portfolio that has a relatively low P/E ).

Earnings are pretty good right now, they will most likely improve, there is no discernible reason (that make sense to me) other that normal market behavior for the price drop in our companies and our companies are now being sold at a better value.

Now that our good companies are on sale, they probably won’t be for very long. We should be thankful for this volatility, because it allows us to get a bigger share of our companies for a lower price.

Going on the record, Ubiquity networks was not in my portfolio a few months ago, it now makes up over 2% and I’m going to make additional purchases over the next few days.

Here is a link to an relative, interesting article. In fact, I really like the website and its generally positive outlook (I like to think of myself as an optimist).

http://www.marketminder.com/a/fisher-investments-hey-la-hey-…

DJ
Who is extremely positive, happy to have about 15% in cash, some of which will be put to work shortly, and not worried about this volatility, because of a long run perspective.

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DJ, if you like Fisher, he has a great book: Markets Never Forget (But People Do). I highly recommend it.

Neil

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I sold off all the extended stocks with PE’s way out there, which had a long way to fall (3D printing, Z, etc). Almost all my stocks, and certainly all my large positions, have PE’s of about 30 or less (except SZYM which is a medium position at present, and PRLB and AEYE which are a small positions).

Hi Saul,

I REALLY like this strategy. The companies with lower PEs are probably not going to be hit as hard as those with skyscraper PEs, so in an eventual market drop this would work well. In fact, with money I have been adding, I 'm now only looking to add to my high conviction position, and I 'm paying particular attention to valuation. This is also one of the drivers for my 10K project.

I have only one 3D stock position, SSYS, which I intend to keep. Among all the 3D stocks I have followed, SSYS is certainly the best of the lot!

Zillow has fallen nicely from its all time highs of $140. Are you completely out of it? Would you consider getting back into it at some point? It’s one that has interested me since it has dropped, and its highly volatile which means good options opportunities as well … but I would like your inputs before I delve into it in any great detail.

What are your thoughts on PRLB? This one also piqued my interest but I haven’t found time to do any thorough research.

Anirban

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Hi nevercontent,
I just bought the book and am awaiting delivery.
Thanks,
DJ

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Here is a link to an relative, interesting article. In fact, I really like the website and its generally positive outlook (I like to think of myself as an optimist).

Hi DJ. Thanks for the article you linked to in post 3593. It was interesting and very sensible.

Saul

Zillow has fallen nicely from its all time highs of $140. Are you completely out of it? Would you consider getting back into it at some point? It’s one that has interested me since it has dropped, and its highly volatile which means good options opportunities as well … but I would like your inputs before I delve into it in any great detail.

Anirban, they don’t give adjusted earnings, just adjusted EBITDA, so I give them the benefit of the doubt and figured adjusted EBITDA with a normative tax rate of 35% and figured it per share. I get trailing twelve month earnings of 53 cents. At $115, that gives them a trailing PE of about 220. If you used GAAP, I guess it would be higher. I’ll let you decide.

Saul

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Anirban, they don’t give adjusted earnings, just adjusted EBITDA, so I give them the benefit of the doubt and figured adjusted EBITDA with a normative tax rate of 35% and figured it per share. I get trailing twelve month earnings of 53 cents. At $115, that gives them a trailing PE of about 220. If you used GAAP, I guess it would be higher. I’ll let you decide.

Anirban, Think about it this way. If they increased earnings by 100% in the next 12 months to $1.06, and then increased them by 100% again in the 12 months after that, to $2.12 — then two years from now, they’d still have a trailing PE over 50. That doesn’t mean I’m right and it will go nowhere, just that it might.

Saul

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Psychologically with Z, I’m having trouble selling because I’m price anchored to $150, and I gave serious thought to selling at that time (the sharp rise was too good to be true) but didn’t pull the trigger. I know it’s foolhardy to think this way, and yet… I still haven’t sold.

I need to pull my head out and place the order.

Saul,

http://stockcharts.com/h-sc/ui?s=$SPX&p=W&b=4&g=… Notice, however, that the last three moves higher in 2014 have all resulted in large pullbacks – note, pullbacks, not corrections – overall the market will be moving higher IMHO.

Quillnpenn - “In tribute to all who seek to record their ideas and share them with others”

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I sense a teachable moment…

I sold off all the extended stocks with PE’s way out there, which had a long way to fall (3D printing, Z, etc).

As I understand it, you tend to stay fully invested. What triggered you to free up some cash in advance?

I think I understand how you decided what to sell. How did you decide when to sell? And did you gradually reduce your position, or exit quickly (and why)?

Thanks for any insight you can give.

-Mark
… who is hoping this dip lasts another 2-3 weeks (or gets worse!), when I’ll have another modest cash infusion to put to work.

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Hi Mark, I didn’t free up cash, I moved from high PE stocks with lots of hype to reasonable PE stocks, growing at least as well, without the hype. I sold out the 3D stocks at least 6 months ago. Zillow in recent weeks (starting at $145 and down to about $120, but I had bought it about $90).

Saul

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