In light of the panic occurring in the markets, some have recently asked me for advice in terms of what to do if they've been invested over the last year. The simple answer is, if you haven't sold by now, today is definitely NOT the day to sell. Although as a trader, I understand that nothing is impossible with the market (including a quick drop to 8000), the metrics of this week's fall has reached historic proportions.
If you are an investor, my recommendation is to spend time researching and coming up with your "dream portfolio", if you do not already own it. Which, in my opinion, most people do not own, because most are invested heavily in mutual funds, which basically move with the indexes. I'm a proponent of active investing, as long as you're willing to do the work. In the end, you should have your own personal mutual fund when the dust clears. Owning a handful of fundamentally sound, growth stocks will seriously outperform any mutual fund or market. You may even find yourself ahead of where you were when the market was at the top!
Tips:
1. Avoid commodity related stocks. Oil CAN go back to $30 dollars, and it won't matter what OPEC does.
2. Avoid penny stocks or unknown small cap companies (the ones on sale right now are the names we all know. unprofitable small cap companies will always be around for you to play with later).
3. Buy a couple companies that are most likely to continue paying dividends.
4. I like China - big cap china names. (Notice how EDU has barely budged?)
5. I like Solar (although it remains to be seen whether they are traded as "commodity" related - if they are, then abandon ship)
6. Don't buy stocks just because they are down 80%, in fact, you should be buying stocks that have outperformed this crisis (down 15% for example). There is a reason for it. When the market comes back, they will continue to outperform and be the first to hit new highs.
Thursday, October 9, 2008
Wednesday, October 8, 2008
What's going on?
The market appears to be in utter mayhem. As I've repeated time and time again, the more involved our government becomes, the farther we have to go on the downside. Never in history has a single move by the federal government correlated with the bottom of a market. The best way to interpret everything that's happening is: they have completely lost control.
In addition, I felt the short selling ban was probably one of the most foolish moves ever made by the SEC. In my opinion, it only caused the market to drop further. The buyers were basically playing cards with themselves. Short sellers were providing a great deal of stabilization in the market as they fell. And in fact, after tonight (short selling ban is lifted), I will make a near term guess that the market will finally show some signs of stabilization. The financials will remain the single #1 leader for the market at this time (up or down), and with the short selling restrictions lifted, we'll see. In fact, the market has gone nowhere but down since the day of the ban. Did you notice?
As I predicted months ago, Washington Mutual is now off the map (as well as a few others).
We also have some well loved sectors absolutely decimated (ie. solar, commodities). In fact the commodities sector will most likely go much lower from here. They have and always will be cyclical. Although I couldn't help but dabble in some FCX and RTP yesterday and today. It simply looks "too cheap". But always remember, it's not.
As far as the banks go, it's important to note that many of them have written down decades of profits in the recent turmoil. 30 years of earnings have now disappeared in the blink of an eye. When the government starts buying these assets, the losses will be sealed in stone. To be honest, I'm worried about Citibank. Who also happens to be the bank used by my broker. If citibank falls to below 10 dollars, I will most likely wire out my capital that day. Is it possible? YES! Especially with the Wachovia fiasco, citibank basically told the world that they might not be able to survive without Wachovia's deposit base.... scary.
The current fear in the financials resides in the fact that banks need to continue honoring capital withdrawals for daily activities of large corporations. It is entirely possible that a large corporation such as GE or Boeing could basically be unable to withdraw capital. Now imagine that there are tens of thousands of businesses worldwide who rely upon our banks to fund their activities. The commercial paper market has been dead recently, and large companies are not able to sell these short term securities as a means to fund operations. Thus the Fed announced they would begin buying commercial paper. This is simply not a good sign. Basically, if a large bank (ie. Bofa, or Citi) were to show signs of deterioration, and a few large corporations become panicky, we will see a CORPORATE bank run (moving hundred of billions in assets from the weaker institution to the "percieved" stronger), and a resulting failure leading to unimaginable consequences. This is NOT out of the question, given the current state of our financial system.
Notice the asian currencies are currently the strongest. More and more I am convinced that it is time to move assets to China. The RMB will continue to strengthen and earnings in US dollars are going to skyrocket, regardless of any slowdown. The spread between BIDU and GOOG continues to narrow. China's market has officially crashed, what better time to start picking some names?
In addition, I felt the short selling ban was probably one of the most foolish moves ever made by the SEC. In my opinion, it only caused the market to drop further. The buyers were basically playing cards with themselves. Short sellers were providing a great deal of stabilization in the market as they fell. And in fact, after tonight (short selling ban is lifted), I will make a near term guess that the market will finally show some signs of stabilization. The financials will remain the single #1 leader for the market at this time (up or down), and with the short selling restrictions lifted, we'll see. In fact, the market has gone nowhere but down since the day of the ban. Did you notice?
As I predicted months ago, Washington Mutual is now off the map (as well as a few others).
We also have some well loved sectors absolutely decimated (ie. solar, commodities). In fact the commodities sector will most likely go much lower from here. They have and always will be cyclical. Although I couldn't help but dabble in some FCX and RTP yesterday and today. It simply looks "too cheap". But always remember, it's not.
As far as the banks go, it's important to note that many of them have written down decades of profits in the recent turmoil. 30 years of earnings have now disappeared in the blink of an eye. When the government starts buying these assets, the losses will be sealed in stone. To be honest, I'm worried about Citibank. Who also happens to be the bank used by my broker. If citibank falls to below 10 dollars, I will most likely wire out my capital that day. Is it possible? YES! Especially with the Wachovia fiasco, citibank basically told the world that they might not be able to survive without Wachovia's deposit base.... scary.
The current fear in the financials resides in the fact that banks need to continue honoring capital withdrawals for daily activities of large corporations. It is entirely possible that a large corporation such as GE or Boeing could basically be unable to withdraw capital. Now imagine that there are tens of thousands of businesses worldwide who rely upon our banks to fund their activities. The commercial paper market has been dead recently, and large companies are not able to sell these short term securities as a means to fund operations. Thus the Fed announced they would begin buying commercial paper. This is simply not a good sign. Basically, if a large bank (ie. Bofa, or Citi) were to show signs of deterioration, and a few large corporations become panicky, we will see a CORPORATE bank run (moving hundred of billions in assets from the weaker institution to the "percieved" stronger), and a resulting failure leading to unimaginable consequences. This is NOT out of the question, given the current state of our financial system.
Notice the asian currencies are currently the strongest. More and more I am convinced that it is time to move assets to China. The RMB will continue to strengthen and earnings in US dollars are going to skyrocket, regardless of any slowdown. The spread between BIDU and GOOG continues to narrow. China's market has officially crashed, what better time to start picking some names?
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