Struggling to regain lost momentum
I seek neither your sympathy nor your adulation, but the acrimony surrounding the Rackable Systems/RACK debacle did sadden and distress me. In the end, that controversy made me gun-shy from sharing my thoughts and insights re the markets. Too, in RACK's wake, this site's readership plummeted; it continues to reach for new lows. I wonder now for whom I make this effort. So, yes, I have not felt especially inspired to continue to plug away. Until the past few days, however, when two separate emails arrived...
"I liked your comments about seeking and finding opportunities in all markets. The older I get the more I am concentrated on that notion. Which got me to thinking about all the very smart perma-bears you and I have encountered in our many (some would say TOO many) years of watching markets. Two names come to mind immediately: Jim Grant and Bill Flenkenstein. They are both very smart, fun to read, and one would definitely go broke if one listened to their advice. I think back to Chuck Almon -- you remember him. Or Richard Russell. You could certainly add to the list. What I realized about all these smart people was that they only had one kind of market that they liked enough to commit to: A market that was dramatically overvalued. They didn't even like the bottom in 2002. They required 1982 multiples. Which got me to thinking about the fact that for most of our investing lifetimes, "the market" is not at extremes. Most of the time it's somewhere in a gray zone. If you want to make money over a lifetime, you must find opportunities in the gray zone. You only get a few '82s or 02's and you can't make a career out of waiting for them. Or a living."And then I realized the truth of it: I write for me. That you even read these posts honors me. There might be 1000 readers or only one reader, but it gladdens me if my efforts offer help or guidance to even one of you (or two, as quoted above). That recognition -- that my insights have value, both literal and figurative, academic and practical -- inspires me. So I say, "Thank you!" to these two writers.
"Congrats for what? For listening to your advice? For following thru with your verbal proclamations and your written proclamations (at The Deipnosophist) regarding Google/GOOG? I merely listened and acted on what you suggested. Maybe holding on thru the ups and downs was my decision alone... but I would not have had the opportunity to hang on had I not invested first - and that idea was planted in my brain by you. So to you I say thank you. You made an amazing call on an amazing stock. I owe you."
And so without further ado, I get up off my (money-making) ass, and attempt to post as I once did, beginning with this reader's question...
Uh-oh, you have become lost. Only it is not the market that confounds you, but you yourself. It is ever thus, for each of us. I have read each of your comments posts, and discern several items:
"I have no clue what this chart is telling you. When I attempt to divine what a chart is telling you, I am usually 180 degrees wrong. Lately everything I thought the charts were telling me has been dead wrong. I have been basically on the sidelines since late August (except for some Oct puts that will all expire worthless this Friday), because I thought the charts were presaging another test of the Jun/Jul lows before pressing upward to test resistance. In spite of the tape proving me so completely wrong, I still have a bad feeling about these recent new highs. Like the telltale symptoms of the flu before it really hits and you start barfing your guts out. A couple of these things which may possibly be what you are alluding to, several indexes: SOX and DOW Transports are not participating fully yet in the rally to new highs. the S&P is lagging somewhat for the first time. This could just be sector rotation, or could it be part of what is making me queasy. I do not know what to make of this market, I am completely confounded at the moment! My gut is telling me to stand aside for now and that is what I am doing, for better or worse."
1) You have taken care to recognize the market's many squiggles. Good for you. Unfortunately, you fail to take the next step and place those squiggles into context. Why the hell do you want to short a ~$37 stock (Verizon/VZ) for ~$1.50 of downside when that same stock builds a major bottom? Your objective should be to seek the shallow, short term decline to purchase the stock!
2) The decline of 2000-2002 has scarred you. Never again will you hold a stock as it declines, as you just know that decline will continue all the way to $0. Thus, you lean into the market so close that you not only miss the forest for the trees, you also miss the trees for the bark. In fact, you miss the bark for leaning in to see those gnarls...
3) You have lost all sense of time (your investing time frame, the market's corresponding periodicity). This causes you to ignore (not purchase) a bull market because prices increase (fit that rise into your time frame!), or to sell short for a shallow decline a stock emerging from a massive long term bottom, or to explain everything away because you do not 'get it'.
Get over it. All of it. Discern who you are, what your objectives are, what time frames are meaningful to you, align your time frames with the market's periodicity, discern the trend inside and outside of your time frame, and then invest accordingly. And appropriately.
Some items you might want to incorporate into your methodology:
1) The market has no knowledge you exist. It is not out to get you.
2) Investing is risk; it self-denotes as such. Not investing for silly reasons is not the avoidance of risk but the height of folly.
3) Get in there; get your hands dirty. If you feel uncomfortable, downsize your position size to a level that should you lose it will not hurt you financially or emotionally. Should you instead be correct, the profit will bolster you emotionally, albeit affecting your finances only marginally.
I promised another reader (that would be you, Jeff) a list of those stocks I monitor, accumulate, or own now. Most of these company names will be familiar from previous blog posts. My list rarely changes; what does change is the opportunity created from the fluctuations in price. Down, and I buy. Up (as most of these are), and I make money...
• Ambercrombie & Fitch/ANF -- purchased in mid-August (see CMG comment below)
• American Commercial Lines/ACLI
• American Healthcare Services/AHS
• Apple Computer/AAPL
• aQuantive/AQNT -- The chart setup states the stock should leave behind $30 sometime soon -- and not look back. Earnings, reported next Thursday, could be the catalyst.
• Chipotle Mexican Grill/CMG -- Is today where ANF was in mid-August. I accumulate rapidly this stock; I perceive each short term pullback to be an opportunity to purchase. And will not endure.
• Ctrip.com/CTRP -- a good looking base on yet another China 'play'
• Genentech/DNA -- A massive base.
• Google/GOOG -- What can I say? Except chuckle rudely at the imbeciles who continue to miss this stock. Let 'em talk it down. A few of us will make money with it.
• Heinz/HNZ -- What a gorgeous base the past ~5 months! On the monthly chart, the base shows as a flag pattern, which means the coming breakout counts to the low-50s. I will take that profit... and then some.
• Intuitive Surgical/ISRG -- Huge base a-building.
• Isis Pharmaceuticals/ISIS
• Johnson & Johnson/JNJ -- By now, each of you have tired of reading me drone on about this company/stock as my poster child of a growth stock. But it is. And it only continues.
• Kimberley Clark/KMB
• Level 3/LVLT
• PF Changs/PFCB
• Research in Motion/RIMM -- Accumulated between $65 and $70, when the analysts fretted this stock was headed to $0. Um, I believe you idiots -- er, analysts -- should change your mind before the stock continues to defy your expectation and roar ever higher in price.
• Under Armour/UARM -- I believe this stock will prove a huge winner in the coming months. It already has been so.
• Urban Outfitters/URBN
• Whole Foods Markets/WFMI
Why so many stocks? (There are other stocks, of course, but this list became unwieldy for its length so I shortened it.) Because an investor never knows which one or ones will lead higher the portfolio value. Too, I prefer no aggravation, no grief, nothing but reward. I no longer gnash my teeth debating the merits of this market advance vs that market decline. If I am a long side investor, then I purchase when the price is good. And right. You can see from this list I have some sizable winners. There are several others for which I have high hopes (UARM, etc). Only time will tell. I like the odds, however.
I seek your comments and questions, as each would help me write the next post...
-- David M Gordon / The Deipnosophist