Wednesday, August 21, 2013

Staying Upbeat During a Correction

It's not easy to have faith in the positive nature of the stock market when things are crashing all around you.  The market is down around 5% from the high, and the Dow 30 has gone down 6 straight days.

But, take a little long term perspective.  If you had just come back from a two-month cruise and checked your $SPY position, you would find that it was actually UP four points from when you left.  So, as bad as this recent run is, overall the market is up quite a bit over this quarter and for the year.

The market may still drop, there's plenty of economic uncertainty.  But what's not uncertain is that companies continue to generate services and sell products at a profit, and eventually that profit will hit the companies' bottom line, and will eventually be reflected in stock prices.  Maybe not tomorrow, but over time.

So, calmly continue to buy quality companies.  Not with both fists.  Maybe with a finger or two.  Sell the jokers you bought because they were flying high, when they didn't have a good, profitable product.

Stay the course, just trim the speed.

Thursday, August 15, 2013

Too Much Taper Talk

So, I am watching CNBC Fast Money today, and once again, the whole first segment is about the Taper.  Which, if you watch any other program on there or Bloomberg, pick up a newspaper or go to any business website, is all they talk about.

The Taper, but anyone who doesn't know (if that is even possible) is when the Federal Reserve slows (tapers) the amount of bond buying it is doing, that is, buys less than the $85 billion that it has been doing for some months now.

I suppose this is an important piece of economic news.  But, really, is it necessary to discuss all day long on every program, including my fave Fast Money?  Does it dominate all other news, so that stocks only move based on how the market is reading the Fed tea leaves that day? No, it doesn't.

It's boring.  Boring.  Boring.

Just my opinion.

Thursday, August 8, 2013

CASE Shiller and the Bear Case

Stocks have continued their upward momentum, err, OK, they keep going up.  No doubt someday they will get too high and come back down somewhat, but anyone who thinks they can tell you exactly when that day will be is just blowing smoke.

The latest attempt to pinpoint the top is a reference to the CASE Shiller index.  Founded by a professor named Shiller, it looks at the Price Earnings ratio, but not the Earnings for the last year, but the average earnings for the last 10 years.  It compares this to the historical average, and voila, we are now in a situation where the index is too high.  Something like 24 when the historical average is 16 or so, and it was 24 other times when it crashed.

The problem is, stocks don't always crash at 24.  Once they went even higher and crashed at 43.   In your fear of worrying about a top, you would have missed a 70% run.  History is very often a good guide, but situations are never exactly the same.  The best advice?  Be nimble.  Stay invested, but when things look frothy, as they do a bit now, reduce your exposure.  Try being 80% invested.  You'll have some dry powder if stocks fall, and will still participate if they go up.

You can find the details on CASE by earching it.  I love historical perspectives, so I pay attention to this kind of analysis.  But, why is 10 years a magic number?  If it was 5, the great crash of 2008 would be dropping off now and the index would appear very bullish.

Remain upbeat.