On the market: Is it a bull or a bear?
Posted by Frugal on September 7th, 2006
I am really scared that I’m wrong about being bullish about this market. But today I decided to buy more of gold & oil, and stand pat on my general market holdings. In two days, my networth is down by almost 5% now. And my 1-year CD just got matured, and you know what I did? I took it out, and planned to put into this market again.
Am I placing too big of a bet? Possibly. Honestly, I tell you I’m scared. I can easily lose 8 years of my annual savings if I am wrong. Unfortunately, the continual printing press at US Fed gives me no option. Cash is good maybe for now, but in the long term cash is trash.
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September 7th, 2006 at 12:49 pm
Hi frugal,
Based on your PM and oil overweighting, you have a bearish bias on the stock market, right? You have been buying into the stock market recently, just wondering why you aren’t keeping more powder dry for a larger correction… I’ve been selling off company options and waiting for a bigger correction to put new money in the market, while enjoying some decent CD rates in the meantime.
-rags
September 7th, 2006 at 1:10 pm
See the recent post on Logical Paradox Among Markets. I still believe that it will be synchronous rising towards the year end. Like today, it is again synchronous in oil, gold, and general markets.
I think maybe it is possible to have some 8% correction in the general market towards the October. But I don’t want to bet on it happening. As for powder, the ratio of my cash to my invested stocks/oil/gold is about 1 to 4. I’m very “conservative” and if I were to manage any portfolio, I would be fired to keep a 25% cash pile. Earlier in the year, it was even higher. You can easily see how I’m using my cash from my networth history. The “cash+leverage” divided by “everything_else_besides_home” is not 23% because there are non-stock components, like car, jewelry, and misc that are not under my direct control for investment.
There is a leverage (borrowed money/my relative’s money) component in my cash+leverage. But it’s not that big, nor it’s not anything that I will have a problem repaying.
And of course, I have not counted anything in respect to my company options. It has been serving as an anti-bet against my energy/metal stocks. That is definitely one of the reasons that I have allowed myself to be so concentrated in energy/metal stocks. If they don’t go up, hopefully my company stocks will go up,
.
Of course, lately it was really bad for awhile, when everything went down (like today again).
September 7th, 2006 at 1:51 pm
This could be a good September, but I have no strong reason to think it will be. It could as easily be the start of a terrible period. Bears can make money, and bulls can make money, but pigs get slaughtered. Don’t be a pig!
Yesterday I bought a $20,000 CD, and the day before, I sold out of one of my two equity positions.
I could never lose more than 5% because I set a stop at 5% below my purchase price.
For every big better in the equity markets who wins big, scores lose big.
Alright, enough of my yapping.
September 7th, 2006 at 9:37 pm
If we calculate with conservative in mind, that when we spent X dollars for Y shares that we are getting more in Y, then investing is not risky at all. Sure the equation moves around but if the value supporting Y does not, the market is just being silly.
I maintain 6mos of income in CDs for emergency purposes. I think this is a bare minimum (consider COBRA insurance going for more than a grand a month.) Investing shouldn’t give you restless sleep. It should make your mind contend that…no, it’s not just you working hard making a living (and all the joy that comes with it, like working with a jerk boss and staying overtime, etc) but your money is busy making money for you and your family.
September 7th, 2006 at 10:37 pm
John,
I think there are differences between traders and investors. Investors take positions in shares of stocks, but traders have no positions but just borrow shares for trading. You do have a good point on don’t be a pig. But very few people can become a successful trader. I would be interested in learning how successful you are.
By the way, I think the stop loss percentage should probably be a function of the volatility of the stock.
September 7th, 2006 at 10:47 pm
Simon,
I think if I know with 100% certainty that X is always less than Y, then there would be no risk in investing. But I the valuation of companies is a dynamic process. So this moment it can be more, the next moment it can be a lot less.
Also, the the restless sleep is because of the portfolio size. I can choose to put $500K in cash, or I can choose to invest them. But when your investment in stock market goes up and down by more than $10K everyday, and a drop from a minor down turn is like $50K, and from a bigger down turn, the loss is $150K, do you think you will be restless or not?
I think I will be. Despite that I have increased my tolerance a lot to the absolute loss over the years, the potential absolute loss is still quite BIG compared to my salary or annual savings.
September 8th, 2006 at 4:12 pm
i spent the time replying thoughtfully and then your software unthoughtfully rejected my mis-read of your jumble characters (it was a 7, not a 1). I don’t like that kind of lottery, and won’t be taking that kind of time to reply in the future. I thought I could read it. Stupid me.
September 8th, 2006 at 7:31 pm
John,
I apologize for that. I’ve noticed that, and that’s why I only have 2 anti-spam letters to decrease the chance of that happening. And I have chosen a set of characters that are easier to recognize.
I believe that you can do back-page, and then reload the page if it is not there. I tried that and it worked for me before. In any case, before I fix that, the best bet is to cut & paste your comments into a notepad, and then enter the codes. I sincerely apologize for that, and I wish you could come back some other time and make more of your valuable comments. Sorry again. I know how bad you feel, because that happened several times to me on other blogs too.
I will try to find a better set of characters again this weekend to prevent that from happening again EVER.
Best regards.
September 8th, 2006 at 9:55 pm
I did a backpage and my text was not there.
businesstalkradio.net/weekday_host/Archives/gk.shtml
I’m 95% fixed returns (CD’s and money market) and 5% equities (just AMGN). I bought JNJ and held through the rise and three dividends. Good gain there, likely small loss on AMGN.
September 8th, 2006 at 10:02 pm
I like both AMGN & JNJ. I don’t own them, but I have eyeing on them this year. I bought JNJ in 2000, but sold it long time ago. Cash has a decent return this year. But in general it won’t return 5% plus. Long term wise, stocks may still be better (but I’m not sure whether today is a good entry point).
I’m finding a better anti-spam codes right now. I assure you that it will be improved by this weekend.