Throwing In The Towel

Not me but maybe the market. Yesterday’s decline felt like the market just gave up, it grew weary of fighting. No way to substantiate that of course, just a feeling I had in seeing it unfold. Early in the day I wrote about a slow capitulation in the market in my greenfaucet post and coincidentally the close played into that.

This leads to some meaty theoretical stuff and I certainly don’t have all the answers. By now you should have figured out whether you think 40-50% down will be about it or more like 80% is it (just picking two extremes you can think of it however you want).

I said weeks ago that if you really thought this was the great depression coming at us again you should sell. That probably still stands up now. If you do not think down 80% is in the cards then selling now would simply be selling low, very low.

Anyone reading this site for a while knows I do not think this will be a depression, I think the bottom is about in in terms of price but that we will have several more months of running up and down in roughly the same range we have been in recently.

If that pans out as I think then it will be a long time before we start to feel good about stocks. Individual issues could continue to get pasted even if the market doesn’t do anything very different for a while.

That brings up a useful distinction; “what should investors be doing now?” Any buying someone might be inclined to do now can try to do one of two things (talking about long term investors not traders) either buy stocks that you think will work now or buy stocks that you think reposition for whenever the turn up finally occurs.

Buying the stocks that should work now is likely not the way to go because really what is working now (this gets at the heart of top down)? Pretty much nothing is working now. Buying something now as a place to hide out is the wrong strategy. When the market turns just about everything still standing will work as was the case in 2003. In that light it makes more sense to point any buying you are inclined to do toward the recovery even if that is a couple of years from now.

This is not a call to buy them with both hands, I am not doing that. I disclosed having done a little buying and having plenty of cash still. The names I’ve bought are places I expect to lead a recovery or otherwise snap back quickly.

This idea concedes that a recovery could still be a long way off but going overweight health, telecom and staples now seems late in the game. I’ve been overweight those areas for a while and generally it has been right, relatively, but now that we are down 45% from the peak I’d say it’s too late to overweight those areas.

About Roger Nusbaum 169 Articles

Roger Nusbaum is an Arizona-based financial advisor who builds and manages client portfolios using a mix of individual stocks and ETFs. Roger writes a popular blog, which focuses on risk management, foreign stocks, exchange traded funds, options etc.

Roger has been recognized by many in the investment management industry for his expertise in portfolio management. Roger has been regularly interviewed by the financial press, trade journals, and television news shows. He has also had numerous technical articles published and has been quoted in a number of professional trade journals, newspapers, and consumer finance magazines. He appears frequently on CNBC Asia as a market commentator.

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