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!

27 July 2007

The Summer of Our Discontent

So the markets have turned down, seemingly suddenly and with ferocity; fortunately, this blog's readers had ample time to prepare their portfolios, if necessary.

Please recall that changes in price levels are merely the memorialization of everything that has occurred in advance and under the surface. The afore-mentioned post represented the initial warning of the changes that were occurring then, and that continue to occur now. The market is a dynamic process, which serves as one reason many investors fail to find sanctuary in its embrace; instead, for them, the market's embrace is in fact a strangle-hold.

I want to be careful, however; this post must not be an I told you so but instead be helpful: what might occur next?, how best to deal with these particular changes?, for how long might they endure?, etc. Which is why I appreciate your public comments: they help me help you.

The first item to seek is support for individual stocks (especially your favorites) -- and then the general markets; because general market measures are averages or indices, they will rise or decline less than most individual stocks. Are your stocks among the market's leaders; i.e., do they decline less than the general markets? When the markets stabilize, do your stocks rebound with alacrity? Whether yes or no, the answers are a crucial tell; always listen to the market's message.

If, as, and when your stocks rebound, do they rebound to easily identifiable upside objectives, exceed those levels, or, shiver, fall shy? Is the subsequent decline shallower than the prior (this) decline? Etc. This series of testing is necessary to heal such a tremendous and ferocious price drop; it becomes what commonly is called a base -- a base obvious to most investors only retrospectively. (My next post will highlight a massive longside opportunity for an entire sector.)

Next, identify your investing time frame, if not already done. Is this decline mere noise within your time frame? If so (and it is mine), do nothing (do not panic!), but be prepared to purchase more shares of your leading opportunities. Moments such as now are what separate the men from the boys, the prepared from the frightened.

As this or any price decline continues, great opportunities become available at price levels that represent sheer value; all that remains is more shakeout albeit at a slackening pace -- and time, more time. But you, the prepared, are ready for that, and more.

The morning brought such a lashing rain
I decided I might as well stay inside
And tackle those jobs that had multiplied
Like an old man's minor aches and pains.
I found a screw for the strikerplate,
Tightened the handle on the bathroom door,
Cleared the drain in the basement floor,
And straightened the hinge for the backyard gate.
Each task had been a nagging distraction,
An itch in the mind, a dangling thread;
Knocking a tiny brass brad on the head,
I felt an insane sense of satisfaction.
Then I heard a great crash in the yard.
The maple had fallen and smashed our car.
-- Barton Sutter

Full Disclosure: Long the 9 Core Opportunities (Apple/AAPL, Chipotle Mexican Grill/CMG, Google/GOOG, Colgate-Palmolive/CL, Intuitive Surgical/ISRG, J Crew/JCG, MasterCard/MA, Research in Motion/RIMM)
-- David M Gordon / The Deipnosophist

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