The Deipnosophist

Where the science of investing becomes an art of living

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Location: Summerlin, Nevada, United States

A private investor for 20+ years, I manage private portfolios and write about investing. You can read my market musings on three different sites: 1) The Deipnosophist, dedicated to teaching the market's processes and mechanics; 2) Investment Poetry, a subscription site dedicated to real time investment recommendations; and 3) Seeking Alpha, a combination of the other two sites with a mix of reprints from this site and all-original content. See you here, there, or the other site!

19 May 2005

Chicken cyclicals, redux

Throughout the months of March and April, I took care to explain what was then occurring in the markets:
1) That the market was transitioning from its former leadership (materials, resources - energy, metals, etc) to its new leadership, the chicken cyclicals (retail, restaurants, tech, health care, etc);

2) That the market had failed, since 1 January 2005, to follow its typical seasonal pattern. Thus, the market likely would complete its sell-off during late-April or early-May, and then rally; still against the typical seasonal pattern. (Please review the archives for more commentary re items #1 and 2.)

And these are precisely what has occurred -- which goes to show you that market moves are not always random, that short selling often is folly, especially in the hands of the inexperienced ("Uh-oh, death cross on the NASDAQ!" and "Short Google/GOOG!"), and that investments can be purchased in the face of ugly market conditions. Price is not, nor should it be, the sole arbiter of value. All one need do is exercise discipline, and follow the rules.

The rules I laid out, for one set. I note with glee that Google/GOOG screams higher, that the chicken cyclicals do indeed lead this rally: AMHC, RTSX, SBUX, JBX, RRGB, CAKE, PFCB, PNRA, DPZ, DRI, MIK, JOSB, JWN, WFMI, and URBN, with BEBE and others not (too) far behind. In fact, MW is indicated to gap higher by ~10%! I said then but repeat now to reify the point, leaders lead, and thus are the market's engine not its caboose. During declining markets, the new leaders decline begrudgingly, if at all, that when the selling pressure abates, these leaders rise with alacrity, and when the market in fact rallies (for more than a mere day or two), these stocks spring forth, hopping and skipping higher gaily, daily...

My portfolio has increased its value by 30% in a month only 2/3 complete. And this occurs in a purportedly "bad" market. So color me happy. If you were paying attention and had taken the appropriate actions, then you too would be smiling at your portfolio's profits.

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