Down goes the Dow

I think you've finally lost it.

POTO,

Sanity is relative. I think the Bull case is insane.

Igy

We know. You keep saying it over and over. You're like a broken record.

But, of course, at some point you'll be right. And, yes, we know you think it will be soon.

POTO,

My first post and I am assuming it was your reply.

That was 3/2/2015, and if I recall correctly the market is down quite a bit since then.

Cash is king and evidently risk has returned to investors perception of the market.

Igy

Remember that you are a broken record too. My first post and your reply 3/2/2015:

Ghost of Igloi wrote:

The risk in the stock market is under appreciated. QE has distorted equity prices and the next big move is down rather than up. The Schiller PE is 27 and valuations are stretched when measured against other valuation models. Remember, the stock market has had two 50% down markets in the past fifteen years. The fifteen year average compounded return on the S&P is only 4.3%, which is inferior to treasuries. Treasuries are overvalued as well. Cash is the superior asset class when risk returns to the market.

POTO wrote: Risk NEVER leaves the market.

(for the slowest of the slow - that also means it NEVER returns to the market)

How does that make me a broken record? Are you referring to the fact that I correct you often?

POTO,

You correct everyone yet rarely offer you own opinion.

Igy

So I'm a broken record for NOT offering opinions?

Here's an opinion: you're whacked.

POTO,

Poor baby, did I speak the truth and make you angry.

Mommy will get you a warm cup of coco and that wiil make you feel warm and cozy.

Sleep well POTO, maybe the market will be up tomorrow.

It will be a better day.

Igy

Thanks for helping to prove my point.

Goodnight, Igy.

Good night POTO.

Actually I bought Ford stock today. F may very well go way lower from where it is now but I think I bought it for the right reasons. It wasn't that aggressive or "macho". First of all, you should invest in stocks based on a 5-10 year horizon. So if you think a corporation has a bright future then I don't think you second guess the day to day, week by week gyrations. I happen to think F has a bright future. As to why, I will leave that for another post, except to say they have a dividend I think they will sustain if not increase over time. At today's prices I bought a 5% dividend yield. There is also the tax benefits. Ford dividends are almost tax free income for me. The tax system also effectively provides a free Put worth about $600 to me. Its the rule where you can deduct up to $3000 of losses against your ordinary income. So with Ford, I'm in a nice position. I'm covered on the risk that the price shoots back up (because I have bought into it). On the other hand, if it goes down another 10-20% I still have the dividend, the opportunity to buy it cheaper, and to sell out of the old position and take the tax deduction. It would kind of suck if that happened but the damage would be minimal. Of course if you are totally sure that all stocks are going down then you want to stay in cash. But with Ford you have a weird situation where their profits are going way up, their guidance for 16' is very strong, yet their stock price is down 20% over the last year and a half.

Ghost of Igloi wrote:

I find it interesting the macho challenge of buying stocks in a declining market. My experience has been that machismo turns to disinterest and then panic. Macho, macho, man.

Igy

ryan,

Perhaps you misunderstand my comment. There is a mentality that you should step-up and buy market dips. Also, as part of that thought process is that not doing so displays a lack of courage. I am saying that is not always the case and choosing to fight another day may be a wiser choice.

Ford is a conservatively managed company and the stock does have a nice dividend. I would question whether we are at a cycle top in auto sales.

Off hand I believe the cycle low on the stock is around $8.00. So your downside risk is in this range. Dividends were suspended in the last downturn.

Igy

I generally agree - momentum is a far, far better way to invest than focusing on valuation. valuation is an opinion, a popularity contest - valuation isn't math.

I've mentioned Jim O'Shaughnessy several times - he's one of my heroes. Quant guy. His main finding from backtesting 60-70 years of returns is that momentum works (until it doesn't, at which time you lose a lot) and the best strategy is generally cheap stocks with strong momentum. He prefers price to sales because it excludes accounting shenanigans and temporary changes in a company's earnings. The US market by price to sales is around 1.7 I think - not very expensive.

The classic O'Shaughnessy stock would have a price to sales of less than one and up maybe 50% more than the market itself. Buy a basket of those and you should do fine.

A fund that uses that strategy, HFCGX, has beaten the SP500 since 1996 but not by a huge amount.

O'shaughessy does say valuation matters, but really in terms of expected 10 year returns, not as a cause to get out of the market.

"But with Ford you have a weird situation where their profits are going way up, their guidance for 16' is very strong, yet their stock price is down 20% over the last year and a half."

The last 2 considerations are common to many, only the first is (somewhat) unique. Having said that, I love F because they were the only one to take essentially no bailout monies, even though they lobbied for the bill. If they made decent cars, I'd buy one. Or, if I could successfully and economically import a F car from Europe, I might do that, too--looked into it, too much hassle, Ford here won't back it, even if new.

I agree that there can be specific reasons for buying a stock even at this very moment, but I disagree that publicly-available information is sufficient for the retail investor to make such a decision to the degree of probability with which I personally feel comfortable. YMMV, of course.

**************

This mini-feud between Igy and d seems to me to amount to nothing more than a tiny disagreement over timing. They're splitting hairs. In my case I tend to always be "too early" in my big moves, and I'm fine with that because the markets are not my main activity. However, I do recognize that if I applied myself more diligently, I could delay my big moves to capture more gain, while still making the big moves in time. I know this because I fantasy-tried it after each of my big moves (which is also how I know how much I "lost out on").

Igy may disagree with d that his methodology has any valuable substance, but from where I sit, d still looks prepared for big market changes to occur, and prepared to maybe incur a small loss after a larger period of gain, and is also hedged via commodity shorts and other instruments playing the downside.

It's splitting hairs. They both probably move a bit later than myself, but that's how these things work.

Strange goings on.

The market is in a correction or bear market by some measures yet employment is roaring and holidays sales were fine - up 3%.

either the market is predicting a late 2016 recession or this is panic, perhaps from petrostate sovereign funds looking selling what they can.

I haven't paid any attention to employment data for a long time. It is too rare that anybody does a meaningful analysis of employment by synthesizing U1-U6 data. Using any one number at any one time is IMO total bull.

Let's talk labor force participation rates instead. They SUCK. Which makes much more sense given the weak markets.

Maserati wrote:

I haven't paid any attention to employment data for a long time. It is too rare that anybody does a meaningful analysis of employment by synthesizing U1-U6 data. Using any one number at any one time is IMO total bull.

Let's talk labor force participation rates instead. They SUCK. Which makes much more sense given the weak markets.

as you know, they have falling for 20 years

low labor force particiapation is a negative, but it is nothing new

"valuation isn't math"

Regarding "math", "math" only represents "truth" within that space in which the axioms hold.

Valuation can be a meaningful metric depending on one's investing goals, and one's investing "style". I don't use it for individual stocks, but I do think that it might have some meaning when applied to the markets as a whole, but as I have said, that is relevant only insofar as it makes comparisons with market alternatives possible.

At that point, I think it's relevant, and even...valuable.