Another Buy In
We put some more money to work this morning into the mess -- another 5% -- while I was somewhere over North Carolina, on the way to Tampa. we are now down to 55% cash, from a peak of 80%.
As I noted on October 10, we "scale in over time, in 10% increments, and recognize that the bottoming process can take several months to several quarters to complete. Hence, slowly buying in is the key."
I would expect that another whoosh down will lead us to put another 5-10% to work. I was disappointed to see we didn't get the 1000 point down capitulation. That's probably to pat, and widely expected/hoped for.
Oh well, there's always Monday . . .
Friday, October 24, 2008 | 11:56 AM | Permalink
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We have an entire industry of traders, money managers, institutional investors, etc. who are trained to buy anytime the market drops big. They are all looking for a “capitulation” event, with a spike of fear, because historically it has been profitable to do so. Now what we see is that any time the market opens down big, everybody gets excited and jumps in to buy.
As long as this occurs, we’ll never truly see the selling climax that they’re looking for. The bottom won’t be in until all these traders jump in, and then get smoked when the market falls by another 20% or more. It happened during the depression. It will happen again. The bottom won’t be in until NONE of these clowns wants to jump in and buy equities. That will be the final capitulation.
Posted by: GH | Oct 24, 2008 12:05:47 PM
"the bottoming process can take several months to several quarters to complete."
...especially when you're doing it headfirst.
Barry, are you insane or simply turning Japanese??
Posted by: brion | Oct 24, 2008 12:08:20 PM
You may want to stay in Tampa.
Posted by: Movie Guy | Oct 24, 2008 12:09:17 PM
Had about 5% in - doubled it with coal and refiners.
Posted by: Winston Munn | Oct 24, 2008 12:10:11 PM
Can anyone explain the difference between bottom-up and top-down earnings for the S&P 500? They are so different; I don't know which figure to use for valuation.
Posted by: Adam | Oct 24, 2008 12:11:10 PM
You can say that again GH! :)
Posted by: jason in charlotte | Oct 24, 2008 12:23:12 PM
BR,
You certainly have big ones. I capitulated and sold all the call options yesterday. I had bought these during your last Friday real time call.
I certainly don't have the temprament for this market. I feel a lot better sitting on the sidelines for the moment.
Posted by: tyaresun | Oct 24, 2008 12:30:05 PM
I too went long 100% this morning. My astronomical models are undeniably indicating a very significant tradeable bottom is in this morning or monday morning. If we go lower on monday I will margin up another 100%.
tally ho!
Posted by: MsJuly | Oct 24, 2008 12:36:00 PM
No, Barry is not insane for scaling in slow and easy.
Recessions end, even bad ones.
Stocks almost always bottom before the recession ends.
There are some massive amounts of equity dumping going on that are not, IMO, based on either the seller's opinion of company fundamentals, the seller's view of the stock technicals, or even the seller's fear of additional market losses. Rather, the selling reflects the sellers need to raise cash.
There is plenty of the other kind of selling, too, of course, but I think there is also a large temporary component to the selling.
Posted by: ottnott | Oct 24, 2008 12:44:52 PM
We should have another down leg in here to new lows, but, if we are truly in a bear market (my view), it will be less dynamic that the spike low at Dow 7880. The liquidation on that decline will be from individual investors who were shocked at the recent selloff but didn't act.
In bull markets individual investors and institutions are the sellers in spikes because they lack conviction. In bear markets they hold until new lows finally discourage them. The bottom should be a "W" not a "V"
After that, a rally for a few months and then we start down again for a deeper leg
Posted by: Rod Roth | Oct 24, 2008 12:46:04 PM
What's going to ignite this recovery? We haven't even gotten into all the job losses. Keep the powder dry friends...this ones got a long way to go. It aint your average Bear Boo-boo....
Posted by: ConcernedCitizen | Oct 24, 2008 12:52:32 PM
PPT - no doubt about it. HUGE buying RIGHT at the open with futes down 550 and Asia crashing?! No way anyone with half a brain would buy at that point. It's disgusting. For the skeptics out there, consider that interventions worked in 1929 as well.
http://www.buyandhold.com/bh/en/education/history/2002/r_whitney.html
Posted by: MC | Oct 24, 2008 12:53:47 PM
i have been reading animal entrails and i see a bottom in...........putting all my money in the home builders stocks. dow40,000 by the end of the year.
cant wait til next year when all these idiots realize they lost all their money calling a bottom......
Posted by: ted | Oct 24, 2008 12:57:05 PM
You should completely disregard short term moves in the stock market.
Maintain a long term time horizon.
(Unless, of course, you’re short puts).
Posted by: Warren Buffett | Oct 24, 2008 12:57:53 PM
Stuff like this really makes me wet my pants in my anxiousness to get long this market:
Alea Oct 24: U.S. Treasury Securities:
to receive:$2.570 trillion
to deliver: $2.490 trillion
--> Delivery Fails occur when a trade fails to settle on schedule. There are two parties to every fail: one party fails to receive the security (fails to receive) and one party fails to deliver the security (fails to deliver). Outright purchase and sale transactions can result in a fail. Financing transactions (securities borrowed or securities lent, also known as the market for collateral) may also result in a fail.
Posted by: ConcernedCitizen | Oct 24, 2008 12:58:52 PM
re: your previous post stating "what you'd like to see" (eg: Manhattan Project for econ):
There is currently a hearing on C-SPAN in front of Rep George Miller's committee: Education & Labor. There has been some very good discussion on the forward thinking/planning aspects of econ mess which, AFAIK, is really the first such "stuff" I've seen from congress.
There has been much very, very good discussion at least pointing the way towards solutions. In particular, one of panel member's (Robert Pollin/Univ of MASS) explanation of % of public vs. private $$ directed towards various economic projects real time. He pointed out in late 70's, public contribution was (from memory) around 3.4%, has fallen to around 1.2% now. His point was to hilight previous benefits of public % focus, particularly it's ability to direct focus on what's wanted and needed. He broke it down very well, including private biz's benefits from fruits of such public endeavors.
Rep Sarbanes furthered the discussion very intelligently. This is the kind of stuff I've been waiting to hear, and IMO it was a good start... a very good start.
I don't see (for whatever reason) a listing on C-SPAN's TV schedule... this could be it, but panel is not accurately listed. However, it's listed on the committee's website under for Wed, 10/22/08. Looking @ Wed's C-SPAN schedule, I don't see it there either.
(not surprising it would have been overlooked w/all Waxman's hearing's that day).
Posted by: jdmckay | Oct 24, 2008 1:05:23 PM
Serious post from me this time. Yeah yeah, it's about time for that idiot CNBC Sucks.
GH - your post was so nice, you had to post it four times. I wish you had only posted it thrice so I could make it rhyme. But I agree with you on the points. My problem with that behavior by money managers is how much in transaction costs and lost upside these money managers waste in terms of their clients's returns, with their intellectual dishonesty and impatience in jumping back long into the market. Most money managers are probably about the same age as me, so I am sure they learned the same conservative principles of valuation as me, and not like those late 1990s b-school vintage dolts who started dot coms thinking the world had changed. Anyone who has looked at returns against different P/E ratios knows there is an inverse relationship: when the P/E range for the market is around 14.6 to 19.9 as I believe it is now, the returns for the next 10 years still suck: 5.3% - 7.6%, and those are the median returns! I have said before that you really need to get P/Es below 15 (http://bigpicture.typepad.com/comments/2008/10/analysts-foreca.html) for the broader market to get interesting, in which case median returns for the next 10 years go up to 10% and higher.
I realize most of the peeps on this blog are short-term traders, and these guys are fantastic for exploiting technicals and the idiocy of the market. But on a fundamental valuation basis, this crash still sucks.
Posted by: CNBC Sucks | Oct 24, 2008 1:06:06 PM
agree with quadpost 1-4.
dip buying allows this play to infinity:
on delusion rally, long OOM bank puts, wait 0-48 hours, sell them back on the inevitable thrashing.
wash, rinse, repeat.
Posted by: bri | Oct 24, 2008 1:06:55 PM
This is how capitulation works in real time.
BR was right for 2 years so now he thinks by scaling in for 2 years eventually he will be right.
When he is all in and wrong for another 2 years THEN an epiphany.
The other option is to trade it away, then gain insight.
Capitulation only occurs when you have been wrong for a long, long time.
Quote for today "Cash will continue to outperform until stocks are no longer fashionable."
And boy will that take a long time. One reluctant convert at a time.
Posted by: garthdbrown | Oct 24, 2008 1:16:46 PM
Garth --
This buy in will be over the course of weeks not years.
I expect that between now and 2 years from now, we will be both higher (first) and lower (later) eventually.
We've been in cash long enough and missed enough of the down move that we can comfortably take some hear here for a few days and weeks.
And again, we are still over 50% cash . . .
Posted by: Barry Ritholtz | Oct 24, 2008 1:17:53 PM
man, you mega bears are as bad as perma bulls...when BR makes a call that isn't the most bearish thing ever, you freak and some even start name calling.
those that at least use some logic to explain your position are excused. the rest of you - get a life.
Posted by: lucioloud | Oct 24, 2008 1:31:23 PM
There is a better than even chance that we will see capitulation today based on Chris Carolan's darkest days of the calendar year study. Today marks one of the 4 darkest days of the year.
I am not predicting this, but don't be surprised if the indexes drop by as much as 20% by moday morning from yesterday's close.
Posted by: blin | Oct 24, 2008 1:34:58 PM
OK, I need to vent again, but what I really, truly hate is when CNBC keeps talking about stocks tumbling but they are off "their session lows" or their "12 month lows". Why the need for spin? Being off the lows is not news, it is probably the case 98% of the time. You only hit a session low once, twice, maybe three times in a day.
Until CNBC stops treating its viewers like children, I don't see capitulation. So we may be in a stock market malaise for years. Lots of short-term trading opportunities though.
Posted by: CNBC Sucks | Oct 24, 2008 1:35:44 PM
since when are markets logical/ rational?
Posted by: bri | Oct 24, 2008 1:44:59 PM
Cash is a position.
It is NOT a Mega Bear or a Perma bull.
When someone disagrees with you it is not name calling.
Do a Google search for stock investing rules.
You will find:
Never take a big loss
Dead cats don't bounce
Wait until the move begins
The trend is your friend
Manage risk
Be patient
Do not throw good money after bad
This is Investing 101 stuff, if you do not have any capital when the real trend becomes clear what then?
I do not know what that trend is going to be, and yes maybe it will be up.
love you all
Posted by: garthdbrown | Oct 24, 2008 1:47:58 PM
