ThePanelist.com - Listening to Market Predictions: Do Not Get Caught Picking Your Bottom

Listening to Market Predictions: Do Not Get Caught Picking Your Bottom

Written by David Neubert

Monday, 27 October 2008

The media is having a field day with the market decline. People who wouldn't normally be interested are watching CNBC or Bloomberg TV and reading the business section. If you are making predictions of Dow 2000 or Dow 1000 you will get on TV or quoted in the newspaper. Now there is also a big incentive to call the bottom of the market. The person who randomly picks the bottom will become famous but many who follow the predictions of bottom pickers will get nothing but losses. There is an old Wall Street saying that goes: "Don't pick your nose and don't pick bottoms."

What is the right thing to do?

If you have a 401k:
Stick to your strategy. Keep your allocations the same and your ongoing investment allocations to equities the same. Falling stock prices mean you are buying more of the market with each investment period.

If you have a brokerage account:

Diversify. You have no idea which company will be next to fail. You are better off making sure you don't have too much exposure to any one company. That hurt me when Lehman failed and was my wake up call. That laziness kept me from properly diversifying my exposure away from Lehman and financial stocks in general. After that collapse I sold enough of any stock to which I had an exposure of more than one-percent of my portfolio. If I didn't have a good alternative to buy, I bought a combination of (TIP -$94.62) (inflation indexed treasure notes ETF) and index funds (mainly the Vanguard All market exchange traded fund: (VTI - $43.02). In that way, I'm exposed to the stock market and also protected against all the inflation these global bailouts will eventually cause.

Disclosure: I still own some defunct shares of Lehman. I own VTI and have recently bought more in this falling market. I own TIPS, and after selling out of my entire position months ago at 106 and above, I've now bought back in. I try not to pick my nose in public and I will not try to pick a bottom but will continue to buy value companies on the way down whose valuation, based on a lack of debt and lots of cash on the balance sheet, makes sense.

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Comments (2)

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written by hedgie reader , October 27, 2008

Dave, Please explain how, a 700-800 million bailout vs 7 trillion in lost stock mkt value (not including housing prices) can this bailout be inflationary this time around? Leverage is a bitch!!

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written by craig , December 09, 2008

this is in regards to a comment you placed on a blog called Breakout Performance concerning "Plan B" for Yahoo. Microsoft is a company that ultimately requires a "New Strategy". We are aware that Eric Jackson of Ironfire Capital utilzed the Internet to rally supoort from frustrated Yahoo shareholders.
We are aware that Microsoft has languished at approximately $25 per share for a long-term. Mr. Ballmer in 2004 adopted a strategy of stock buybacks. Microsoft has deployed $115 billion to stock buybacks. This has failed to elevate shares.
Mr. Ballmer pursued a 65% premium bid for Yahoo valued at $45 billion. An analyst with Goldman Sachs stated this was the most stupid move in Microsoft's history. This has lost investor confidence.
Mr. Ballmer during his tenure has engaged in massive overspending, poor execution of strategy and failed to elevate share value.
We are confident that it is time for a "New Strategy". We have developed a proposal that will enable Microsoft to deploy capital to a "New Strategy". This will enable Microsoft to deploy less that its proposed $45 billion yahoo bid. It will enable Microsoft to acquire two companies that will add according to 2007 reports $260 billion in annual revenue. It will enable Microsoft to acquire valuable assets and dramatically propel revenue and net income growth. For approximately $30-35 billion Microsoft can acquire two companies that will provide Microsoft with combined annual revenue exceeding $300 billion annually and net income of approximately $30 billion.
We are seeking to utilize a similar strategy as Ironfire Capital and Pershing Square. We are seeking to utilize the Internet to rally support from frustrated shareholders.
As mentioned, we are aware of your post and support of "PLan B". We are seeking to forward information for your review via email.
We may be contacted at thecrandreagroup@hotmail.com.
We will also have complete blogs with Blogger and wordpress.
Craig

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