As you have heard 100 times since mid day yesterday the S&P 500 is back above 1000 and up 50% from the March low. If you have had any equity exposure through this, either by virtue of not panic selling or buying into the panic your account value is likely much higher that it was five months ago and all of the bull/bear debating in the world doesn't change that.
This is either a normal sized feel good rally for this type of event or a real bull market started. Regardless of the arguments on either side no one knows. There is plenty of opinion to be sure but no certainty. Any sense of relief anyone might feel should be recognized as an emotion. People have emotional reactions, that is not what hurts people. The danger is in how people react to those emotions.
Go back to what you were thinking back at the lows. Back then and a couple of times on either side of the lows I made comments about the lows not being the time to give up on stocks. There would come a time where they would go back to their highs and that based on normal market history a big snapback after the panic, not necessarily going to the old high right away, could be on the way and at that time, anyone wanting to start swearing off stocks could start to reduce.
I have been saying all the way along that stocks were not permanently broken but it is clear that many people learned the hard way that they had the wrong investment plan with too much exposure to volatile assets or perhaps the wrong (for them) strategy to navigate the types of cycles that volatile assets go through.
For all the people who said to themselves if it only gets back to... well up 50% might be a place for people who really think getting out of stocks forever is a good idea to start getting out. One thing is certain, whatever stress, fear, angst or whatever that you felt at the bottom that made you want to swear stocks off; you will feel that again at some point in your life. People in this category need to look hard at themselves in the mirror and come to grips with how bad was it really and whether getting out of stocks forever really is the right thing to do. If these folks can come to realize what a bad idea that is likely to be then hopefully they can figure out how to better manage volatility and their own emotion so that they don't make themselves miserable and don't sabotage their financial plan by panicking out as some people did at SPX 700.
I will repeat that stocks are not permanently broken, the US is not permanently broken, sometimes huge volatility goes with the territory but there are probably better opportunities in equities from other countries.
A quick fire department story. We had a medical call yesterday that involved rock climbing. Some big boulders are not big enough to climb on meaning they can roll out from under you.
22 comments:
Where is Beeks? Futs not looking so good this morning, downright peckish in fact; e.g., http://tinyurl.com/4r2mq
Bumps along the way, but the S&P is going much higher. I wonder when everyone admits this is a bull market?
Anon 5:56
Are you Larry K or Dennis K?
Unfortunately the higher this little rally goes the more paranoid I get.
Anon 6:03: Probably only when its proven and only way after the fact. I'm starting to get tired of the bull/bear market debates as if that was the end result of the market. For that matter, is there even an "official" definition of a bull market? Could one declare the past several months a bull to claim victory of being right?
Roger: Good post. People do seem to talk about doing the opposite of the prudent thing. I wonder if there has ever been a study on which emotion is stronger? Do more people resist fear and stay in after a crash or do more people resist greed and pull off some profit after a 50% run up? For me it must be greed is stronger. I have protection and defensive plans but haven't put enough thought into an upside profit plan
A shaped recovery, V shaped recovery....what a load of bull.....
there are guys like huffington and http://www.forecastfortomorrow.com that keep bringing the truth....but obama and his clowns dont... and i underline the word clowns there....this whole thing is a charade and a joke peoples.
god bless and prepare for the coming 12 months...i am not joking. Things are about to turn for the worse.
"I'm starting to get tired of the bull/bear market debates as if that was the end result of the market."
You are entitled to your own view or get tired of information and put your head in the sand if you so choose. I am interested in knowing when I should be over exposed to the market as opposed to under exposed because I am not tired of increasing the size of my portfolio.
Buy and hold has lost a decade and is likely to loose another decade before this is all over. So I would like to participate in all of the cyclical bull markets.
I'm managing my emotions by staying engaged but skeptical on the way back up. I take profits regularly to keep my target allocations in line. Not quite rebalancing, since I'm holding my profits in cash just in case... I could let my winners run, but I'd feel a lot more anxious than I do watching my cash cushion grow.
may be up 50%, but most are still down 20%++.
Anon 7:54. I'm not tired of information at all nor am I keeping my head in the sand. I just fail to see how winning a "bear rally vs bull market" debate will increase a portfolio size. Is there a point that after X people declare a bull market that they get magical returns that the bear rally people miss out on?
Its similar to the calling people speculators topic that was here several weeks ago. There seems to be a focus on the definition of words instead of what actions to take in the markets.
Re. managing volatility: Better to add some SDS in here vs. letting go of long positions.
I guess recognizing a bull market when I see one is still important to me. I still see posts about the sky will fall and time to buy some sds. I'm up 27% end of July with no losses last year.
I will agree that arguing secular vs cyclical bull has no point, but I try to get fully invested in bull markets. So I like to identify the bull markets when they occur. Some time in 2010 or 2011 I will likely predict a bear market and I hope people will be just as disagreeable with me then.
I'm not trying to be an ass with this question its a legit one...
What is the strategy behind investing in a bull market vs bear rally? Because from your wording as I understand it you make a transition to fully invested when you hit your definition of a bull market. Presuming you are anon 6:03 you have determined that right now we are in a bull and are wondering when the rest of us will agree with you. If you had absolutely no losses last year and have a 27% gain this year you are doing a lot better then me and probably everyone else here to including Roger so I am interested in hearing your thoughts.
I don't see a bull because of the following. I am not seeing any solid fundamental improvements in the U.S. economy or earning reports from the companies themselves. Its all just "not as bad as we thought but its still bad". While that can raise stock prices and markets I dont think it justifies a 50% gain. I also havent seen millions of new jobs that were lost after October to raise our consumer driven economy.
I would not invest heavily for a rally because they are hard to predict and can end abruptly - to much risk.
The market priced in the end of our economy. It did not happen. Things always look horrible coming out of a recession, but there is plenty of positive news. Look at the ECRI data. ECRI leading economic indicators have been positive for quite a while. inflation is low, but not to low.
interest rates are low. There is a positive yield curve. Financial balance sheets are steadily improving.
Positive stimulus is without precedence and lots of it has not been spent yet.
Look at the advance decline line and new highs - new lows at stockcharts.com
If you are going to wait until all the information is in place and obvious to everyone you will give up a lot more of the rally than you already have given up and you have given up roughly 50% increase already. Nobody gets all of it, but why give it all up.
This is a bull market and will have a relatively "normal" end to it. As Roger has said bull markets will roll over. I do not expect a collapse of the market at the start of the next bear. I would expect a collapse from a bear rally so I think it important to differentiate between the two.
That is not to say it will not be bumpy but there are always rough patches.
BTW, I forgot to say do not look at unemployment. We had too many years of excess borrowing & spending.
Unemployment was to low for to many years based on the excess borrowing. We will now see unemployment to high until excess debt is corrected and that could take decades. None the less we will experience bull markets and this is one of them, but nobody is going to like them because unemployment will be such a negative.
Don't get me wrong I do not like it and did not create the problem. That is no reason not to try to profit when a bull market presents itself.
Roger- hindsight suggests you should have acted more on your strategy in taking more offense above the 200 dma. How are your clients dealing with SDS and high cash levels?
My advisor is telling me to hold but he also said hold when my acct was much larger. We think it is time to take out 30-50% and move into safer investments(CD's) because I am still down 30% since the highs.
Wow, all the hotshots come out of the woodwork when things are doing a little better: But hey, anyone who claims (anonymously) to be doing really swell with their investments on an (anonymous) blog ...who could doubt, eh?
But it was worth it for this memorable bit: "Unemployment was to (sic) low for to (sic) many years based on the excess borrowing. We will now see unemployment to (sic) high until excess debt is corrected and that could take decades. None the less we will experience bull markets and this is one of them ..."
Now that it is clear there is a theoretical underpinning for a consumer-based society growing without employed consumers -- it is clear, isn't it? -- the Nobel Prize Committee will doubtless be calling regarding this newly discovered financial perpetual motion machine any day now, if only they knew who to call.
ROFL
Look, there is a lot of money sloshing out of the stimulus coffers and there will probably be more on the way but as long as most of it goes to plutocrats rather than job creation while economies are otherwise contracting nearly everywhere then another bubble is probably the best we can get although something that looks vaguely like a bull may flop out of the cloaca; e.g., http://tinyurl.com/ls2wz8
Those with confidence in their risk assessment, position sizing and asset management systems, whether they see things otherwise or not, will follow their discipline. Those who lack confidence, seeking confirmation on anonymous blogs perhaps, may wish to reassess their approach to investing. My discipline requires me to be defensively long strategically and tactically long-short; YMMD
Roger,
Thanks for the nice website,
but....
The pop-ups on your site are getting really annoying....
Some pop-ups even chase me along the page....(really)
Is there a better way?
Yikes...I agree, about the pop-ups
...geez, I'm paranoid enough without those things chasing me.
First I ignored them then I finally
had to click one out of curiosity...it shut me down!!!
malicious code or what...???
Then I said to myself, maybe Roger
doesn't want me to post...maybe
he is telling me to get out of the market....really, I obviously spend too much time on the internet.
I'd fire my investment manager for owning SDS. After a 50% move up, any manager who made this sort of a short term trade looks pretty foolish.
I guess I would get fired. I think getting some pullback protection AFTER a 50% rise is a pretty smart thing to do.
If not after a 50% rise when would you start to get defensive?
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