moneypageoct

money page: market
update oct 08

Here are two observations about the stock
market that can be written in stone:

1)The market is never obvious

2)The public is always wrong

Last night I attended a meeting of my
investment group to discuss the usual—the
dodging of bullets stock market-wise.

There are 2 and only 2 ways to play the
market:

1) buy and hold

2) Buy and hold but not for too long

Way #1 is the preferred method of Warren
Buffet, worlds richest human, who said: the
best time to sell a stock is never.

Way #2 is the method practiced by my
group that takes its cue from William O’Neil,
founder of IBD—-Investors Business Daily.
Ive written of O’Neil elsewhere—go to my
rise and fall and rise again in the stock market

O’Neil has made a career of picking stocks
warren buffet wouldnt touch if you put a gun
to his head.

Way #2 works like this. You buy a stock that
is going up, even straight up and tag along
for the ride until the ride show signs of
coming to an end—the bloodbath—and you
make your exit.

Its a simple concept and easier said than
done—but not for O’Neil who isnt the worlds
richest human but has scored sufficiently to
dump 200 million of his own money into the
paper before it began to turn a profit.

Back to the group and last nights meeting.

There are three levels of investors in the
group. The bottom level that includes people
like me who are savvy to a point. The middle
level are savvier than the bottom level and
then its on to the upper level where you have
the super-duper savvy types such as mike
and Jerry. Mike is 52-- a retired engineer and
he didnt retire on his engineers pension. He
retired on the money he made in the stock
market. Same with Jerry—age 45—another
early retiree. They now spend their time
peering into a computer 8 hours a day
analyzing charts.

Last night mike gave a talk. The subject was
the current pitiful emotional state of the AIC—
the Average Investing Chump--due to the
well publicized unraveling of the US banking
system.

What is a bear market and how long do they
last? A bear market is the market we are in
at this moment, that began 11 months ago
on 2 Nov 07 when the Dow topped at
14,200 and it will last as long as it has a mind
to.

Mike threw up a chart of the S&P 500 going
back 30 years to trace a series of bull/bear
market cycles triggered by some apocalyptic
event that had everyone convinced this was
the time for sure that promised to plunge the
world into the financial equivalent of the
middle ages. For example:

1973-74: oil crises. The price of crude
triples from $3 to $10/ barrel

1981: oil crises. A standoff with Libya. Also
inflation--a hike in the fed discount rate to
17%

On to 1987 and the Savings/Loan debacle.

1995: collapse of the rouble

1997: collapse of the Indonesian rupian
resulting in a domino effect to trigger a slide
of neighboring currencies over in China,
Korea, Thailand, etc--the “Asian Contagion”

2000—2002: the dot.com bloodbath, Enron,
9/11.

Etc, etc

Mikes point: its always something.

He then spoke of a word: capitulation.
Capitulation in the market means the same
thing like in war: when the carnage has
become so horrific and devastating and
mindless in its savagery that surrender is the
only option. The will to continue the fight has
failed. You must throw in the towel.

This is what we are seeing now in the market.

The 3 month T-Bill is the government
equivalent of a mattress. Last week the yield
on the 3 month T-Billl disappeared—or
nearly. It went to 0.01%. The significance of
this is: investors have swallowed so much
fear they are unable to swallow any more and
are willing to accept a 0.01% return on their
money as the price to be paid for a decent
nights sleep.

That is capitulation with a capital C and Mikes
point was—when money begins piling up on
the sidelines in these huge amounts—its a
signal that the bottom is near—maybe. Time
will tell.

That was Mikes little talk.

But here is another point—as pointed out by
the writer John Train who said: the market
is a barometer—not a thermometer. When
the weather is gorgeous it can only mean a
storm is brewing and when the storm rages a
spell of calm is about to follow.

This is the nature of markets—the bear that
follows the bull as certain as night follows day
and the ebb and flow of the tide

Meanwhile keep in mind what I said above:
the market is never obvious and the public is
always wrong.

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Jesus. Why?
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