The following information is not meant as a specific investment recommendation but rather only as background and general information. As always, before you or anyone else who reads this takes any investment action, you or they should speak with an investment advisor to see if such actions are within your risk parameters and in accordance with your investment objectives and goals.
August 29, 2009 - Market Commentary
1. The short-term model reading from Friday’s close did NOT drop below its 21 day moving average, BUT now from August 7th to now AND from 8/26 to 8/28 the model is in a negative divergence to the market price (Dow 30). Meanwhile, the long-term model from May 8th, June 12th and July 27th is still in a negative divergence to the Dow. Both of these together make a strong case for a market ready to roll over. Which reminds me, that was a great movie from the 1970s with Kris Kristopherson I believe.
2. Another news flash was from my friends at elliottwave.com, issuing a special one page newsletter on Friday 8/28 at 9:15 before the market opened. “Given the extent of the rise, there is no longer much reason to allow for a more complex corrective pattern, (i.e.) to the upside (RL insert), to unfold. When the market rolls over, it should be heading into wave 3 down, which will be the strongest downward wave.” Ok let’s stop here and think about this…the market top was October 2007 at about 14000 and if the bottom in March 2009 marked wave 1 down which was followed by wave 2 up to right now, and you are telling me (which I already know) that wave 3 will be stronger down than wave 1? Yes, that is exactly what they are saying. Now keep in mind that they don’t put a time limit on the decline. They also go onto to say that the market could drift a little higher before the wave 3 begins. But the fact that they came out with a special premarket short letter, I think, let’s you know what they really think. Actions speak louder than words!
3. Let’s see what else hit the newswire, oh yes, Atlanta Federal Reserve President, Dennis Lockhart as reported to have said on Friday that the true unemployment rate was not the 9.4% we hear about from the DOL, but it was actually about 16% when you add in all the people who have dropped off the rolls because they stopped looking for work. I said a few weeks ago this very point, and added to it those who can only find part time work (under employed) to make a total effective rate somewhere in the upper teens % of unemployment. Keep in mind during the Great Depression, the rate hit 25%. But read with me…between the lines…this guy is no small fish, and I don’t believe he would say something like this that could put HIS job in peril…and further, I believe the Federal Reserve Board is a pretty tightly knit group of people. So was he just “off the reservation” or was his statement meant as a “purposeful leak” in this situation? I think it was the latter. The next question then should be is why did SOMEONE (Ben), want to “leak” this kind of data out to the press. I assume we’ll find out soon enough.
4. With all these earnings “beats” from the second quarter (tongue in cheek) and earnings being down a ton year over year … much more than the stock prices, got me thinking about that good old fundamental analysis tool, the P/E ratio. From still more of my friends at decisionpoint.com, over the weekend, they pointed out in great detail that I will spare you and instead just get to the punch line…the current P/E of the S&P 500 on a GAAP (Generally Accepted Accounting Principles…my fellow CPAs) is 150: 1. No, that is not a mistype. Because earnings have simply cratered and the price has not come down quite as much we are at 150:1. (e.g.) if a stock is priced at $20 and it is earning $2 per share, the P/E is 10. Now, what if the price drops 35% to $13 but earnings drop by 80% to 40 cents per share…the P/E will shoot up to a very high 33. That is how the P/E moves around. So if the earnings have dropped to basically nothing, yet the price did not drop quite that much, you can see how it can get to 150:1. By the way, the long term average (neutral) for the P/E historically has been 10 to 20. Anything over 20 usually is thought to be a sign of an overvalued stock. So how do you get the P/E back down? Well, either the “E” must rise significantly and FAST or the “P” needs to fall a bunch. Given that unemployment is where it is and that the consumer makes up 2/3 to 70% of the economy, and that companies have been cutting costs (people) to “make their earnings estimates look “so” good, I just don’t think the “E” rising quickly is in the cards. That leaves the other alternative…look out below.
5. Dow Transports appear to be rolling over. The saying is that “Transports usually lead the market up or down”.
6. This market has kept advancing which makes some believe that it can’t go down. Keep in mind that the market works on FEAR and GREED. Market tops are formed out of greed, which Michael Douglas’s character in the 1980s movie WALL STREET said, “greed, for lack of a better word, is good”. Greed also takes longer as people want that last buck of appreciation. Greed is an emotion as is FEAR, but FEAR is much stronger of an emotion, and that is why bottoms are set very much faster…they are formed out of FEAR.
7. Elliott Wave folks point out that at wave 2 tops, optimism runs rampant…like an 89% bullish reading this past week in the Daily Sentiment Index of S&P500 futures traders. It was 88% in early October 2007…. top top top!!!!! Now we also have such a terrific “financial” magazine as Newsweek coming out with a cover story recently saying the Recession is OVER! Also Bernanke said a few days ago, “Economy is reviving; the downturn could have been far worse.” 8/21/09. Basically, he was saying we are one, out of the woods and two, it could have been way worse if I didn’t stop the decline with my tactics = more signs of too much optimism?
8. The weekly chart (very slow moving but usually dead on the “big picture”) of the Dow 30 shows a growing array of negative divergences in leading indicators (histogram, ROC (momentum), Full Stochastic). The MACD is not quite there but the histogram usually precedes the MACD into a sell or buy signal, and now the histogram is saying “sell”.
9. The Daily chart of the Dow 30 is in a negative divergence vs. leading AND lagging indicators like the MACD. When the weekly and the daily coincide things usually go the way they point. I would characterize the current situation this way to give you a clear mental picture…the Doppler radar is tracking a storm that is severe and rotating (and I am sure you know at that means), then on the radar a “hook” is spotted which is a signature reading of a tornado. But where is it? I keep looking up at a black and green sky full of clouds but nothing…just then it drops down out of the of clouds…oh ___! Well, that is exactly what I think is a fair representation of what I see in sentiment readings, economic conditions year over year not just this silly green shoot ___ of month over month stuff, and technical analysis of the charts.
10. Lastly, I want to close with a “broad brush” analysis I did this weekend regarding the past 6 years (2003 – 2009) about price and volume. I have mentioned before the old adage of “volume precedes price”, so I went back this weekend and took a look at the weekly charts. Here are my findings:
Late June 03 to Sep 03 volume trended down as stocks rose, then stocks corrected -3%
Sep to Oct 03 volume trended upward as stocks corrected down, then stocks advanced +13%
In August 04 to October 04 volume trended upward as prices dropped, then the market rose +10%
Dec 04 to Mar 05 volume trended downward as prices rose, then the market corrected -10%
Sep 05 to Nov 05 (remember Katrina?) volume rose as stocks dropped, then stocks rose +13%
Apr to July 06 volume rose while stocks dropped, then stocks advanced +18%
July to Aug 07 volume rose as stocks dropped (remember July 07 when the fabulously wise S.E.C. did away with the up-tick rule?), then stocks advanced +13% into the October market top
Sep to Oct 07 volume trended down as stocks rebounded from the drubbing in August, then stock prices -18%
Nov 07 to Jan 08 volume up then stocks from Jan to May 08 +13%
Mar 08 to June 08 volume declined, which was followed be the market dropping -18%
Jun to July 08 volume rose and the market followed with an advance of +9%
July to Aug 08 volume was down and of course you know what happened…the market -35%
Dec 08 to Mar 09 volume was up as prices declined, then in early March the market started a rally that took it up +36% by April
Apr to June 09 volume once again declined as the market steadily marched up aided by the always “on the ball” TV media, then came the June market correction taking the market -10%
NOW……..from July to Aug 09 volume has been declining as the market (price) is advancing…..after all the above data points, what do you think is the market’s next, most likely move?
Just keep looking at those clouds above. There might just be a tornado in them ready to drop down on us. But then again if you are “in your shelter” (i.e.) if you are not in a heavy long position of stocks… what’s the difference?
LFM is an investment advisory firm that strives to preserve capital and achieve future financial well-being for our clients. Questions, large or small, contact me (Richard Luthman) on my direct phone line 937-304-9078 or at LFMinvestment@gmail.com.
August 6, 2009 - Is the stock market possibly getting close to some kind of top?
Weekly chart of the Dow Jones 30 stock average shows the volume decreasing ever since early April 2009 as the price of the index moved higher. There is an old adage in investments that “volume precedes price”. It certainly was true from January 09 through late February 09 as volume increased and then peaked just as the market bottomed out in early March. Now the reverse of that is happening. At some point, not far away, the market momentum move up will exhaust itself and pull back. If the market pulls back to its 200 day moving average, that would be a 10% pullback. If it pulls back to its July low, that would be a 15% pullback. Whether it is a 5%, 7%, 10%, or more of a pullback in stocks, the market is due for a rest period.
Warren Buffet came out recently on CNBC “investment voice of the common man” and said he would be buying stocks even at the Dow 9000 level. Maybe he is right, maybe not. But if people buy now and then suffer a 10% to 15% loss OR MORE, before the market then moves higher, they won’t be too happy with Warren. What CNBC should have also reminded people in the headline about Warren buying at Dow 9000 was that his, self acclaimed, holding period is forever! But that wouldn’t have been as “news worthy” as splashing Warren Wants to Buy at 9000 across the TV screen.
Watch the U.S. Dollar. As the dollar rises (dollar getting stronger), stocks tend to fall because of the negative effect on multi-national corporate profits. Also as the dollar gets stronger, obligations of the U.S. government (i.e.) Treasuries, tend to appreciate. So as the dollar turns up, stocks should slide down and bonds should move higher. Yes I know all the debt arguments against the dollar getting stronger, but looking at sentiment indicators, the U.S. dollar is now, where it was in early 2008. Then only about 10% of traders were bullish on the dollar which means that 90% were bearish on it. Did stocks fall in 2008? Did bonds rise in 2008? On both counts the answer was a resounding YES!! If the dollar can bottom here sometime in 2009, will the same happen? It may not happen to the degree it did in 2008, but there should be some movement down in stocks and up in bonds as investors run for cover.
According to data from our friends at Investors Intelligence data about what corporate insiders are doing is disturbing. Insiders are now selling at a pace (i.e.) 3.5 sellers to 1.0 buyer, that is more than where it was in early May 2008 (an intermediate stock market top)! Anything over 2 to 2.5:1 sellers to buyers is bearish. While insiders are now more bearish than they were in May 2008, they are less bearish than they were in October 2007 (top of the current bear market). In early March 2009 they were not only less than 2.5 sellers to 1 buyer, they were 2 buyers to 1 seller (rare and very bullish). Were they right in early March? Yes. Are they right now? That is yet to be seen. But why they tend to be more correct than not over time is because they (corporate insiders) know their own companies’ future better than any Wall Street analyst or the TV media. They know what we all want to know…..and they are selling at bearish levels!!!! That pretty much says it all.
LFM is an investment advisory firm that strives to preserve capital and achieve future financial well-being for our clients. Questions, large or small, contact me (Richard Luthman) on my direct phone line 937-304-9078 or at LFMinvestment@gmail.com.
July 31, 2009 - Let's Keep Our Eye on the Ball
Back in 1983, Jason Robards (one of my favorite actors), starred in a movie “Something Wicked this Way Comes”. It was a classic tale about the battle between good and evil with a SCI-FI twist to it. The market indicators now remind me of that movie. There is a battle between the time-tested indicators and the short-term market movements (“permitted” manipulations by the large program traders?).
The long-term indicator model has been trending lower from a high position (we call that a negative divergence because it is declining as the market it advancing). As in prior blog entries I have noted for you that when indicators and prices diverge, prices most often follow the indicators up or down.
Actually the long and short term models are in sync with each other in so much as they are saying the same thing. The long term model started its negative divergence to the market from the May 8 high to the June 12 high in 2009. This is an ominous sign because the long term indicator, while very slow moving, is often an accurate indicator for the market’s basic direction. It is kind of a “forest for the trees” indicator model.
The short term model, a quicker moving indicator, which had been moving higher with the stock market is now overbought and actually in a negative divergence to the stock market as well. When these two models are in agreement or confirm each other, things usually “get interesting”.
My friend Sy Harding (SyHardingblog.com) a very good, long-term player in the stock market, pointed out this morning that “the NASDAQ is the most overbought above its 20-day moving average it’s been since the bubble top in 2000, 2 bear markets ago”.
The initial results for the 2nd quarter GDP were released this morning and it was down as expected but just not as much as “the analysts” of Wall Street had expected. They had expected -1.5% , but it actually came in at -1%. However, the revised 1st quarter GDP was revised from a previously reported -5.5% to a more accurate -6.4%. The further out you get from the initial data, the more accurate it is. So will the 2nd quarter’s -1% be revised down as well? Given how earnings and revenue from companies have been coming in over the past few weeks, I’d say you can count on it.
Actually, all this media “happy talk” of things being less bad so they are good, reminds me of a TV commercial back in 2002 that showed a sales manager talking to his stock brokerage staff about what to sell that day. He ended his speech with the famous line “…ok people let’s put some lipstick on this pig and go to work.” So far this earnings season, it sure seems to ring true similar to what he was saying. Analysts cut estimates SO much that companies couldn’t help but “beat estimates” and allowed the TV media to hype the results. When you have high unemployment as we do, companies reporting less revenue as they are…even the big Chevron today reported less revenue than a year ago, and GDP results confirming the economy is not growing, and the media focusing so much on earnings estimates that were generated on the backs of laid off employees but beating the unrealistic low estimates by the Wall Street “analysts”, it reminds me of a line from the 1995 movie “The American President” starring Michael Douglas. The President (Douglas) just ordered an air strike that unfortunately killed some innocent people, but all the press wanted to know about was his girlfriend. It was then he stopped and reminded them “…look folks, some good people were killed tonight through no fault of their own, so let’s keep our eye on the ball”. And with that he ended the press conference. That pretty much sums up how I view the media today…we’ve got problems in this country we’re trying to fix, and lots of good folks are hurting now, so let’s “keep our eye on the ball”. Don’t parade guests on your shows that say how good it is now or talk about that it is “less bad” so it must be good. The economy will recover but for the media to proclaim that the recession in July 2009 is over is absurd.
LFM is an investment advisory firm that strives to achieve preservation of capital and future financial well-being for our clients. Questions large or small, contact me (Richard Luthman) on my direct phone line (937) 304-9078 or at LFMinvestments@gmail.com.
July 22, 2009Management of Public Expectations and Short Term Memory
A headline this morning in the USA Today newspaper in the business section “Fed foresees jobless peak this year” was brought to my attention by my 18-year old son. He said it sounded like pretty good news. After thinking for a minute about an appropriate response, I said “These are the same guys (The FED) back in late 2006 and early 2007 that said the economy was growing and everything was fine.” But since after all it was “the FED”, everyone believed them. FOLKS, THEY WERE SO WRONG!!!! Fast forward 3 years to today and they are NOW they are telling us the jobless peak will come this year… in spite of… stated unemployment that continues to grow….in spite of… the increase of the ranks of the unemployed who have just stopped looking for work, and in spite of ….expanding numbers of the “underemployed” who want full time work but can only find part time work. Did the FED suddenly get wisdom? No.
In the June 12th issue of the USA Today , the government’s U6 measure (combined stated unemployment and those who have stopped looking for work) was reported at 16.5%. And that doesn’t count those working part time because they can’t find full time work. The true total unemployment rate is more like somewhere between 17% and 19%! Keep in mind the Great Depression of the 1930s saw unemployment hit 25%. We are getting dangerously close to it.
I agree that AT SOME POINT the jobless rate will peak, but to borrow a phrase from the movie “Jerry McGuire” …SHOW ME THE MONEY”. When small businesses (the backbone of the U.S. economy) start reporting they once again have reasonable access to credit, which the reports of today say they do not have, and companies start reporting increased revenues not just better bottom line profit made on the backs of laid off employees, maybe I’ll start to believe the jobless rate may be peaking. Until then FED, you “show me the money”.
But my point here is not to beat on the FED but rather to illustrate the public’s desire to believe anything that will make them feel better and their (the public's) incredibly short term memory.
Let me illustrate a point…Corporate quarterly reports. Over the past couple of days I have observed the flip side of what went on in late 2006 and early 2007. Many people don’t remember that period, but I do. Then companies would miss by as little as 1 cent what the “analysts” said should be correct earnings. In many cases the stock price of those companies would plummet 25%, 40% or more on that news alone. That was clearly ridiculous as it assumed the analyst outside a company knew everything inside the company accurately. Now if a company beats the “analysts” estimates for earnings even by 2 cents, the stock rises. Take USB for example: USB reported their profit, year over year, plunged by -77% from $.53 a year ago to $.12 today. But the “analysts” had expected USB’s e.p.s to only amount to $.10 per share. USB beat estimates by 2 cents. Well, you would have thought they just made a trillion dollars. The stock jumped 4% on the news. No one assumed that the analyst was possibly wrong and had cut his estimates too much. No, they assumed USB was healthy and on its way up. But the technical chart picture has not changed…the indicators are still trending lower. Either the price of the stock will follow the indicators lower or the indicators, which are slow moving averages, will suddenly turn and follow the stock up. Which will happen?
When it comes to stock prices and their indicators, two things are true more often than not, ONE, stock prices and indicators tend to move together up and down, and TWO when they diverge from each other, the most often outcome is that the price will follow the indicators. So in this case, until the indicators and the price come back in line with each other, odds favor the price will come down as the indicators are telling us.
Last point to keep in mind…until revenue (referred to by the TV media as “top line”) increases, companies are not getting back to a healthy position. You can cut costs to improve your “bottom line” earnings per share, but you can only cut costs to zero. We need to see increased revenue, period!
LFM is an investment advisory firm that strives to achieve preservation of capital and future financial well-being for our clients. Questions large or small, contact me (Richard Luthman) at 937 304 9078 or at lfminvestments@gmail.com
Here is a sample of a letter dated June 9, 2009 sent to LFM clients.
(to download the letter, click here)
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June 9, 2009
Re: Investment Strategy Update
Dear Client:
Considering recent movements of the stock market, bonds, oil, and the U.S. Dollar, it seemed timely to provide an update that reviewed our current investment posture and outlook.
CURRENT INVESTMENT POSTURE IN STOCKS
Currently we are very low in equities, and have a modest exposure to fixed income investments. As such, investment accounts are relatively heavy in cash. This may seem inappropriate to many in light of the TV media’s continual coverage, as well as comments from Wall Street and the government, that prosperity is knocking at our door. First of all, these are the same sources in 2005 and 2006 that did not report on the expanding real estate bubble and the potential problem it could cause. In fact, the head of the Federal Reserve, Alan Greenspan, in a speech to the U.S. Congress that I witnessed in the summer of 2005, implored Americans to take advantage of the very low ARMs (adjustable rate mortgages). The most popular were the 3-year adjustable products. Of course those cheap mortgages reset to higher rates that many homeowners could not afford in…2008. So the government did us all no favors with that advice. So it might not be in our best interests to believe them now. On the other hand, we do believe the economy will recover. But we believe it will not be just as quick of a recovery as the government is telling us that it will be.
The stock market has rallied nicely since early March, and the media has continued to push the “new bull market scenario”. Many people assume the market rallied evenly over the past 14 weeks. This is actually not true. By the 3rd week of March, the market (S&P 500) had rallied to a point that totaled about 71% of the entire rally over the 14 week period. So in the first 2 weeks, or 14% of the rally, the market earned a 71% majority of what it gained during the entire 14 week rally. Our indicators in late March were flashing sell signals. Consistent with our primary objective to preserve capital and minimize investment risk, we sold significant portions of our equity holdings. Obviously looking backwards, we could have held out a little longer for a few extra gains, but that would not have been a consistent application of primary objectives you count on us to abide by. The media will not tell you that until the market rises about 30% more from current levels we are still in a bear market. Please keep in mind the media gets paid to tell us positive news. They need people to watch their shows to sell advertising time. If they are too negative, fewer viewers tune in, ad revenue drops, and so on. It is just that simple. By the way, the 30% figure comes from the point where the market trend breaks out of its primary downtrend that started back in October 2007. And as Charles Dow said in the early 1900s, “a trend remains intact until broken”.
OUTLOOK FOR THE STOCK MARKET
With our heavy cash position we are ready to move back into the stock market as it corrects down. The current indicator picture looks very similar to that of May 2008, which preceded a downward movement in the fall of 2008 as the banking sector contracted its credit to individuals and businesses. We do not see that repeating to the extent it did then. We also believe the low in March of 2009 will be the low for a while, but we do believe that the stock market advance that occurred recently has gotten ahead of itself, and is due for a correction. That correction could be as little as 10% to 15% or as much as 50% or more. At this time, we do not know, but will be watching carefully for signs of a turn back up in stocks. Many indicators support this position from extremely low volume (Friday 6/12/09 was the lightest volume day on the New York Stock Exchange) which indicates a tired market, to a majority of leading and lagging technical indicators that have been pointing lower over the last couple of weeks as the stock market edged higher. These non-confirmations where indicators and prices diverge from each other usually mark turning points. In late February 2009, these same indicators that are pointing lower now were pointing higher as the market declined. Sentiment also plays a big role. In the first week of March as the market was bottoming, investor sentiment as measured by the American Association of Individual Investors was at a record level of pessimism dating back to 1987. With most people negative in early March, the market bottomed! Now in the opposite direction with many investors talking bullishly about the stock market’s future, in the face of still negative economic news, is the market set for a correction? We think so.
OUTLOOK FOR BONDS, OIL, AND THE U.S. DOLLAR
As the stock market rallied from early March, bonds and the U.S. Dollar have declined. This drop in the dollar was the primary cause that pushed the price of oil higher. It was not demand from increased economic activity as the media reported. As I said, we expect the economies of the world to recover, and that demand will cause oil to move higher. But as the dollar declined, with loss of confidence in our government’s ability to spend our way out of the recession, the price per barrel of oil increased. You see a foreign supplier wants to get a certain price for his goods. But since international suppliers must take into account the fluctuations in the value of the dollar, and considering that oil is denominated in dollars, they can only raise the price per barrel of oil as the dollar declines. This way they keep the status quo of their product. And again, it really is that simple.
But our indicators appear to be turning up for the dollar, which should cause oil to back off somewhat, and bonds to also rise. We believe with the dollar’s bounce, bonds will also bounce which is why we want a modest exposure to bonds vs. cash now. But as the “bounce” subsides, we will be quick to reduce our bond position.
In summary, we wanted to communicate to you that we are acutely aware of movements in stocks and bonds, and will continue to stress quick gains as we see opportunities under the “umbrella” of preservation of capital and stock market minimization.
Sincerely,
Richard M. Luthman, CPA, CFP, President , Luthman Financial Mangement
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"At LFM we don't sell books, or on-line research services. What we are about is striving to achieve for our clients preservation of capital and future financial well-being. Sound interesting? Give me a call personally or send me an e-mail, lfminvestments@gmail.com. If you want me to call you "on my dime", I will do that too. Free information that could set you on your way to financial freedom...now that's a great deal."
**I know I said that I would post a copy of a recent LFM letter, and I will, but this article came up and I had to post this first. The letter is coming, but not today.**
On Monday in the USA TODAY there was an article on page 3B entitles "Buy and Hold can be a big loser".
It is just too bad that most investors still don't accept this. Many investors in the market are still down 40%, 50% or more EVEN AFTER THE BIG RALLY WE HAD SINCE EARLY MARCH!. The myth, put forth by many on Wall Street is that the only intelligent way to go is buy and hold, is simply wrong. "They" say "market timing doesn't work". If that is so let me ask you one question..."If market timing doesn't work, why do Wall Street firms pay their own market technicians lots of money to analyze stock charts?" The answer is that it does work. And applied correctly it works very well indeed. The reason "they" do this is because explaining to potential investors to buy good quality stocks for the long term is much easier than explaining why and how buying and selling will profit them more. Once they have your money, and you have bought into the "long term idea" they have basically no maintainence work to do. Then they move onto the next buy and hold target. This strategy reallys angers me because it is essentially fraudulent activity, and unsuspecting investors don't know any difference. Well I am here to tell you the truth.
Here is an example using a stock that everyone knows of ....Apple....
Sell signal 12/14/07 at $190.39
Buy signal 2/22/08 at $119.46 (you just saved yourself $70 per share by sell in Dec 2007)
Sell signal 4/7/08 at $155.89 you made +30.50% profit
Buy signal 7/1/08 at $174.68
Sell signal 9/11/08 at $152.65 (sometimes market timing gets you out before a BIG decline which saves you money) in this example you would have lost -12.62%
Buy signal 11/20/08 at $80.49
Sell signal 4/13/09 at $120.22 you made +49.36% profit
Putting all this together you made +30.50% -12.62% and +49.36% which compounded together = +70.3% total
Now compare that 70.3% profit to a buy and hold strategy also starting from 12/14/07. On 12/14/07 Apple was
at $190.39 per share. As of yesterday's closing price on 6/30/09 it was $142.43. That is a -25.20% loss on a "buy and hold basis".
You tell me which is better .....buy and sell about 4 times in 2 years for a profit of +70.3% buy and hold for the same
period and end up with a -25.20% loss. This is why I say that Wall Street doesn't tell investors the whole story about market timing vs buy and hold.
Last weekend the legendary TV pitchman Billy Mays passed away. Billy had 4 "tests" to see if the product he was being asked to pitch could be successful. #1 Is it demonstratable. #2 Does it have the WOW factor. #3 Is it easy to use. #4 Is it priced right. LFM's service is demonstratable as we just did, and it does have the WOW factor. It is easy to use (we do all the work for you). It is priced right at only 1% of the asset managed for an entire year. So I think Billy would have liked LFM.
At LFM we don't sell books, or on-line research services. What we are about is striving to achieve for our clients preservation of capital and future financial well-being. Sound interesting? Give me a call personally or send me an email, and if you wish include your phone number so I can call you...on my dime. Free information that could set you on your way to financial freedom...now THAT's a good deal.
If you want to see a couple other investor professionals on the internet that believe in buy and sell not buy and hold, visit my friends Sy Harding at www.streetsmartreport.com or Jim Rohrbach at www.investment-models.com
June 24, 2009
“BUY AND HOLD” v. “BUY AND SELL” Has the world of investing changed?
For so many years investors have been taught to do their homework on a company, buy the stock,and let it appreciate over the years. Even the IRS tax code encouraged that with the benefit in lower taxes if you hold the stock for longer than 1 year. That all sounded great, and since companies were making money, and their stocks were steadily moving up….how could you lose?
Does this all sound familiar? Is this how you invested? But all that changed in 2007 as the stock market topped out. Now, even after a 30%+ rally from early March 2009, the stock market and many investors’ portfolios are still lower by 40% or more. So what went wrong?
What went wrong for so many people was that they were not conditioned to sell. Investors place more emphasis on “buying” and not nearly enough on “selling”. They know if they sell they’ll have to pay capital gains tax, and they are correct. But what is better…pay capital gains tax and still have a net profit left over OR don’t sell and therefore don’t have to pay the capital gains tax…..but see their “gains” in some cases totally go away? The answer is obvious. SELL the stock when you have a gain!!!!! The trick is of course is to try to sell as high as possible. At LFM we use technical analysis to help us buy as low as possible and sell as high as possible. No one is perfect, but if you win more then you lose …..you will build wealth!
Up until 2007 the investor mantra was to minimize taxes. Since 2007 the mantra has been and continues to be to maximize gains AND lock in those gains as quickly as you can before they go away. In other words, place an equal amount of attention on “when you buy” as well as “when you sell”.
One last point, I have talked to people over the past several years who say from the top in 1999/2000 to the top in 2007 they broke even. Maybe they broke even in price, but they lost something they can NEVER get back…..those 7 years. They didn’t sell because CPAs convinced them paying taxes was bad. Paying taxes, commissions, etc. is not bad folks. It means you made money!!!
At LFM we don’t sell books, or on-line research services. What we are about is striving to achieve for our clients preservation of capital and future financial well-being. Sound interesting? Give me a call personally or send me an email, and if you wish I will call you so it doesn’t cost you any phone expense. Free information that could set you on your way to financial freedom…that’s a pretty good deal.
NEXT POSTING will be a copy of a letter I recently sent to LFM clients. Until then, don’t forget to sell.
June 11, 2009
How are you doing with the extreme volatility in the stock market lately? Oh, you say it is not gyrating as much as it did last Fall (of 2008). So you are not worried? The media continues to parade in front of us bullish professionals, as they (the media) continue to “attack” bearish professionals as being out of the mainstream. I remember they were “attacking” bearish professionals in the period of Sep and Oct of 2007 (the top of the market)…and the media had it entirely wrong. Now that we have had a stock rally from early March 2009 through early June 2009 +36% on the Dow Jones 30 Industrial Average everyone, according to the media, is saying this is a new bull market and you should be buying stocks hand over fist. Is this the correct strategy? Can we believe these people?
Please keep in mind what Charles Dow said in the early 1900s in the Wall Street Journal …”a market trend remains intact until broken”. While that sounds too obvious to be useful it is true none-the-less. Putting this in context of today’s market…the Dow peaked in October 2007, so if you connect the highest peaks since then and extend the line, that becomes the market’s trend resistance that must be overcome to break us out of this bear market. Doing that you will find that until the market breaks above about 11,500 we are still in a bear market! That’s right folks we are still in a bear market until the stock market rises ANOTHER 30%. But there are strategies you can use to make money even in a bear market.
You may look at your investments and say that you are still 40%, 50% or more below where your investments were in October 2007. That is entirely possible as the stock market IS STILL about 40% below where it was in October 2007. But even in bear markets there are brief rallies that can last from a week or two to a few months. If you are quick enough and have the discipline to buy and sell at the proper points, YOU CAN PROFIT FROM BEAR MARKET MOVES without using all the modern day “cute” trading strategies like options, straddles, etc. There is nothing wrong with just buying plain old stocks, holding them for a while and then selling them. That is what we do and it has worked for us.
From June 2 to today (June 11, 2009) the Dow has moved up only about 60 points but…….from 6/2 to 6/4 the Dow was -185, from 6/4 to 6/5 it was up +241, from 6/5 to 6/8 it was -206, from 6/8 to 6/10 it was +201, from 6/10 early to 6/10 in the afternoon it was -195, and from 6/10 it is up so far +204. To put this in into an annual context historically, the stock market tends to appreciate 10% to 12% annually. In terms of Dow points that would equate to about 207 Dow points. So in the Dow is now moving on a daily basis what it used to do on an annual basis. Which leads us to what investors’ questions are “What can I do now? How can I build back up what was lost? Should I be aggressive or conservative? Should I be in stocks , or bonds, or CD’s or what?” These are serious questions that deserve serious answers. Making money with your investments is not easy. You’ve got to really want to make it, and we can help.
Next time I’ll talk about two opposing strategies (i.e.) buy and hold vs. buying and selling…at the right time. Until then stay focused and don’t be misled by the media chatter. Remember they are a business that has to advertise. If you don’t watch, advertisers won’t advertise, and the media won’t make any money. They HAVE to make the news entertaining enough for you to watch. They are not investment advisors.
