Skip to main content

Markets are going down -- what should I do?

Twice last week I got that question, don't know why!  I keep on telling all my friends that I must be the world's worst stock picker -- if I choose it, it will go down.  Anyway, the markets have decided that the news is suddenly bad, don't know what is different suddenly (not wars, not economics).  It used to be that in thin summer trading "trolls" could play their games but with the advent of high frequency trading this is no longer realistic -- for those who don't know HFT accounts for 40-50% of all trading activities on most North American markets.

So since computers don't take holidays summer doldrums cannot be it, maybe the markets have over-reached over the past few months.  I always commented that the markets were rich over the past few months -- corporate profitability has never been higher (NEVER) as a percentage of GDP, earnings multiple while not insane are "rich" insofar as there's not much increase in multiple (again the logic here is that markets revert to the mean -- always) so when the multiples are high there's is less room for the upside.

Short interest has been rising over the past few months -- since hedge funds don't take kindly to inactivity there is a rush to look at negative outcomes - moreover, with volatility down the crapper (at a level not seen -- ever) sustained low vol has a huge impact on the price of options -- its true!  Cheaper option means; more room to play -- on the other hand less vol means that the stock movements have been minimal (they go up slowly...)

Back to my point, first don't sell in a panic, think of your average price and then look at what is important.  Those who were able to perfectly time the market (all liars by the way since perfect market timing is impossible as a trading strategy) made a bundle in 2007/2010.  think about it you sell Citi at $500 and buy it back at $10.00 and then today Citi is trading at $48!  The reality is that you cannot achieve that: you sold at $50 and you bought back at $36!

My advice is don't buy individual stocks -- because as a retail investors you cannot follow individual stocks (you may be able to follow a sector?).  If you pick stocks then understand them, buy bell-weather stocks (e.g. GE, Bell etc) and make sure that you have target returns -- Have some bonds and stocks (depending on your age more bonds or stocks), and that's it.  There is no magic formula!  Personally I like ETF, because they are cheap as hell to trade and hold -- they are very liquid and at the end what is important for investors is to reduce transaction costs, and there is a wide variety, so you can be sector specific and you can invest cheaply  offshore, if that rocks your boat .

Anyway that's just me!

P.S.  No position in Citi, GE or Bell


Popular posts from this blog

Trucker shortage? No a plan to allow driverless rigs

There are still articles on how America is running out of truckers -- and that its a huge problem, except its not a problem, if it was a problem salaries would rise to so that demand would clear. Trucking is one of those industry where the vast majority of participants are owner/operators and therefore free agents.

Salaries and cost are extremely well know, "industry" complains that there are not enough truckers, yet wages continue to fall... Therefore there are still too many truckers around, for if there was a shortage of supply prices would rise, and they don't.

What there is though is something different; there is a push to allow automatic rigs to "operate across the US", so to encourage the various authorities to allow self driving rigs you talk shortage and hope that politicians decided that "Well if people don't want to work, lets get robots to do the work" or words to that effect.

This has nothing to do with shortage of drivers, but every…

Every punter says oil prices are on the rise: Oil hits $48/bbl -- lowest since September 2016

What the hell?

How could this be, punters, advisors, investment bankers all agreed commodity prices  in general and oil prices in particular are on the rise...its a brave new era for producers and exporters -- finally the world is back and demand is going through the roof, except not so much!

What happened?  Well energy is complicated, the world operates in a balance -- 30 days of physical reserves is about all we've got (seriously) this is a just in time business.  So the long term trend always gets hit by short term variations.

Global production over the past 12 months has risen by somewhat less than 1.5% per annum.  As the world market changes production becomes less energy intensive (maybe), but the reality is that the world is growing more slowly -- America Q4 GDP growth was around 1.9% (annualized) Europe is going nowhere fast (the GDP growth in Germany is overshadowed by the lack of growth in France, Italy, Spain (lets say 27 Euro members generated a total GDP growth of 1.2…

Paying for research

This morning I was reading that CLSA -- since 2013 proudly owned by CITIC -- was shutting down its American equity research department -- 90 people will be affected!

Now the value of a lot of research is limited, that is not to say that all research is bad. In fact, I remember that GS's Asia Aerospace research was considered the bible for the sector.  Granted, there was little you could do with the research since the "buy" was for Chinese airlines...that were state owned.  Still it was a vey valuable tool in understanding the local dynamics.  It seems that the US has introduced new legislation that forces brokers to "sell" their research services!  Figures of $10,000 an hour have been mentioned...

Now, research can be sold many times; if GS has 5000/6000 clients they may sell the same research 300x or 400x (I exaggerate) but this is the key -- Those who buy the research are, I presume, prohibited from giving it away or selling it, at the same time the same rese…