Re-Entering the market (finally!)

[blazespinnaker]

Well, I'm exiting my all cash position and getting back in the market.

For various reasons, I lowered my risk profile significantly in 2003 (I thought we were going into an RE bubble .. silly me!) and missed the recent run up, though did well in RE along with all the other no talent home owners.

In 2006 I went to all cash, sold RE, everything and started studying the market in earnest.

My conclusion? Speculation is 99% for losers (nothing personal, folks, if you're a speculator I do not mean you personally).

The other 1% (The Eric Janzens of the world) can actually make money by speculating. The more power to them!

However, I am not in that 1% .. and frankly, I don't think I'll ever be. So, I'm just going to be boring and do traditional portfolios. The only market timing I'll do is try to buy a bit when the market is diving, and try to sell a bit when the market is rising high.

Right now, with the Russell 2000 down 20% I think I'll pick up another couple of points of my portfolio there. I'll probably grab a couple of points every 3% or so droppage.

I suspect bonds will be going up a bit, but since they've gone up so much already, I think I'll leave them alone. I should have bought when they were lower last year (I was going to!) but I didn't. Alas!

Anyways, my portfolio as it stands is about 5% equity, 95% cash. Hopefully we'll see some more serious whackage soon and I can start picking up some more..

I'm mostly going with broad based indicies .. nasdaq/dow/s&p/etc .. They have a lot of multinationals which I think will do well when the global economy recovers from the latest malaise.

Obviously I plan on having to hold for a long time, eg: 10 years or so. I think we'll do OK .. would have been better to have this recession a few years back, but I guess we couldn't let Al Qaeda get the best of us..

[c1ue]

Re: Re-Entering the market (finally!)

Blaze,

So you don't think it is too early to jump in?

The real fun hasn't even started yet.

I'd think dollar cost averaging would be better started after the 1st subprime wave is past, but before the Alt-A (i.e. June 2008), but with a larger starting position.

In the 40% down scenario, you'd be only 17% or so in when the tide starts turning.

It seems with such a low starting point that you're either getting set for a 60% drop, or will pile on when you think the turning point is reached.

Of course, the danger with that is the head fake!

[blazespinnaker]

Re: Re-Entering the market (finally!)

Well, at the rate I'm averaging (2% of my portfolio every 3% drop), I think I should be OK.

I'm in 95% cash right now so I don't think I'm rushing here with the Russell already down 20%.

[Jim Nickerson]

Re: Re-Entering the market (finally!)

I agree with seeoneyouee.

There are a lot of technical indicators that are very oversold right now, and it will surprise me most if we do not see a bounce upwards here soon.

Hussman wrote something recently that sticks in my mind: in effect, by the time a recession is in effect, markets may be down about 20% and then fall another 10 or 20%. I hope I remembered that correctly; I am not going to confirm it.

1/17/2008	CLOSE	DELTA	% DELTA	OFF HIGH
DJ Industrials*	12159.21	-306.95	(2.46)	-14.85%
Nasdaq Composite*	2346.90	-47.69	(1.99)	-17.98%
S&P 500*	1333.25	-39.95	(2.91)	-15.41%
DJ Wilshire 5000*	13389.66	-383.31	(2.78)	-15.99%
Russell 2000*	680.57	-19.34	(2.76)	-20.54%
		average	(2.58)	-16.96%

I imagine persistent bulls have been hurt in the last 3-6 months, but despite that pain, these are still not major losses, just major when compared to the piddling corrections over the past 5 years.

[c1ue]

Re: Re-Entering the market (finally!)

Blaze,

Actually, for once I'm not telling someone the world is going the end :eek:

I'm just noting that if there is a 40% correction, that you'll not gain much from being correct unless you are planning to 'pile it on' during the upswing - and that the trouble then is you're going for 2 in a row in the prediction department.

[Tulpen]

Re: Re-Entering the market (finally!)

Obviously I plan on having to hold for a long time, eg: 10 years or so. I think we'll do OK .. would have been better to have this recession a few years back, but I guess we couldn't let Al Qaeda get the best of us..

10 years from now the baby boomers are lining up to sell their assets to pay for an inflated cost of living, astronomical medical expenses and high taxes because the government debt went through the roof and no foreign entity is willing to support them any longer.

Stay away from holding dollars.

[blazespinnaker]

Re: Re-Entering the market (finally!)

Which market is going to drop 40%? And is that 40% from the peak or 40% from now?

Even if the russell drops another 40% on top of the 20% it has already dropped, that would mean that I've only invested 20% of my portfolio by that point, with an average investment at 20% (ontop of the already dropped 20%). I'll have another 75% of my current portofolio left to invest at 40%.

After the 40% drop (if it happens) the market will go back up. The market will go up forever (mostly due to inflation, of course!). People will learn not to participate in market by myth, solar / wind will replace hydrocarbons, AI will improve, manufacturing will be done by robots.

Life will get better, the world will not end. If it does end, well, there is plenty of farmland in Canada and all this money will be pointless anyways

[Andreuccio]

Re: Re-Entering the market (finally!)

I agree with seeoneyouee.

There are a lot of technical indicators that are very oversold right now, and it will surprise me most if we do not see a bounce upwards here soon.

Hussman wrote something recently that sticks in my mind: in effect, by the time a recession is in effect, markets may be down about 20% and then fall another 10 or 20%. I hope I remembered that correctly; I am not going to confirm it.

1/17/2008	CLOSE	DELTA	% DELTA	OFF HIGH
DJ Industrials*	12159.21	-306.95	(2.46)	-14.85%
Nasdaq Composite*	2346.90	-47.69	(1.99)	-17.98%
S&P 500*	1333.25	-39.95	(2.91)	-15.41%
DJ Wilshire 5000*	13389.66	-383.31	(2.78)	-15.99%
Russell 2000*	680.57	-19.34	(2.76)	-20.54%
		average	(2.58)	-16.96%

I imagine persistent bulls have been hurt in the last 3-6 months, but despite that pain, these are still not major losses, just major when compared to the piddling corrections over the past 5 years.

I notice the gold/xau ratio (I started watching it a few months back after you pointed it out) is currently at 5.08.

[touchring]

Re: Re-Entering the market (finally!)

Which market is going to drop 40%? And is that 40% from the peak or 40% from now?

China and India markets can even drop 80% if exports fall off the cliff.

[Mega]

Re: Re-Entering the market (finally!)

Blaze
I got into the market with Euro-pac on Weds, again lests see how it goes over the next 5-10 years.
Mike

[FRED]

Re: Re-Entering the market (finally!)

I agree with seeoneyouee.

There are a lot of technical indicators that are very oversold right now, and it will surprise me most if we do not see a bounce upwards here soon.

Hussman wrote something recently that sticks in my mind: in effect, by the time a recession is in effect, markets may be down about 20% and then fall another 10 or 20%. I hope I remembered that correctly; I am not going to confirm it.

1/17/2008	CLOSE	DELTA	% DELTA	OFF HIGH
DJ Industrials*	12159.21	-306.95	(2.46)	-14.85%
Nasdaq Composite*	2346.90	-47.69	(1.99)	-17.98%
S&P 500*	1333.25	-39.95	(2.91)	-15.41%
DJ Wilshire 5000*	13389.66	-383.31	(2.78)	-15.99%
Russell 2000*	680.57	-19.34	(2.76)	-20.54%
		average	(2.58)	-16.96%

I imagine persistent bulls have been hurt in the last 3-6 months, but despite that pain, these are still not major losses, just major when compared to the piddling corrections over the past 5 years.

He doesn't understand that this is a Debt Deflation Bear Market. Few do.

[blazespinnaker]

Re: Re-Entering the market (finally!)

I like Itulip a lot, Eric Janzen is a very bright guy and caught up on the market to myth concept pretty early on (too bad he wasn't running a hedge fund!), but I gotta say, these guys can get pretty gloomy around here.

The future is bright. We just need to stop trying to avoid recessions like they are bad for the economy. There is no economic heaven without economic hell. Sadly, I suspect this lesson will become rapidly unlearned during the next cycle..

I guess the lesson that needs to be learned on iTulip is that there is an economic heaven Instead of all bear RSS feeds all the time, make sure you subscribe to some RSS feeds talking about some great things coming down the pipe:

Here's a great feed:

http://www.google.com/reader/view/fe...Fnews%2Frss%2F

[DemonD]

Re: Re-Entering the market (finally!)

I'm with Jim. It's too early.

Blaze, please also remember part of the "big runup" in share price appreciation over the past 5 years was due to LBO's and corporate buyouts. Right now, the commercial paper market seems to be locked up. When was the last time you heard about a buyout or deal? Yeah there was BAC's acquisition of CFC, that was solely for stock. Maybe the SWF's can ride in to the rescue, but as we've seen their purchases seem to be contra-indicators (how's that blackstone IPO deal looking now?)

Forward earnings are still too high. I'm still looking at the market as being more similar to the Nikkei from 1990, although I don't think US equities will drop quite as much for as long. I have seen some individual equities drop into buy zones, but if you are buying index funds, it's way way too early IMO. Best measure would be S&P under 1200 to start the buying again (another 15%-20% drop or so), and wait for the Russel to go under 600. Both have significant downsides even from there, not much upside from current levels.

[blazespinnaker]

Re: Re-Entering the market (finally!)

I'm with Jim. It's too early.

Blaze, please also remember part of the "big runup" in share price appreciation over the past 5 years was due to LBO's and corporate buyouts. Right now, the commercial paper market seems to be locked up. When was the last time you heard about a buyout or deal? Yeah there was BAC's acquisition of CFC, that was solely for stock. Maybe the SWF's can ride in to the rescue, but as we've seen their purchases seem to be contra-indicators (how's that blackstone IPO deal looking now?)

Forward earnings are still too high. I'm still looking at the market as being more similar to the Nikkei from 1990, although I don't think US equities will drop quite as much for as long. I have seen some individual equities drop into buy zones, but if you are buying index funds, it's way way too early IMO. Best measure would be S&P under 1200 to start the buying again (another 15%-20% drop or so), and wait for the Russel to go under 600. Both have significant downsides even from there, not much upside from current levels.

I disagree, I think the run up has been because of a fundamental devaluation of the dollar. It's why gold, RE, oil, art, and any other asset you can get your hand on has gone up.

I think Eric is right (mostly) about Ka-poom, and I think it's exactly how it's going to play out. However, I'd argue that the extremes won't be as bad as he's written about.. I don't think we'll go as low or as high as he expects, but I think we'll be iin for very high inflation ahead as we try to dig ourselves out of the bursting of the credit bubble.

Stocks are a fairly good protection against high inflation. Also, I don't think it's early.

I'm only at 5% of my 95% cash portfolio and the russell has already gone down 20%. Also, there is a certain degree of currency hedging I'm doing here as well, because I'm canadian and all my assets are in CAD dollars. By buying US markets, I'm diversifying out of the CAD which I think is a little high these days, though is rapidly decline lately, sadly.

I'm not going to re-enter bang! overnight. It's going to be a slow, methodical process of 2% every 3% drop (or so).

I can't call a bottom. Nobody can, not even Eric. Dollar cost averaging has proven to work for the last 200 years or so or as long as markets have existed and I believe it will continue to work. You just need a long time horizon, or at least one with a length relative to the volatility of your investment vehicle.

And the greater the risk (and therefore, the greater the horizon), the greater your return...

[Jay]

Re: Re-Entering the market (finally!)

He doesn't understand that this is a Debt Deflation Bear Market. Few do.

This is just fancy way to say stagflation right?