First rule of Investing. Dont fall in love with positions or try to prove yourself right. I thought we might get a bounce. I was wrong. I covered my short puts when the market started to shed its gains. So I lucked out there.
More importantly, i wanted to clarify my bullishness. I don’t think the markets will just immediately turn around, and i dont want them to. I dont need to pick the absolute bottom of the markets to see stocks that pay good yields at these levels. More importantly, if they pay good yields at this level. They will pay better yields at lower levels.
Once I made the decision to go long, I didnt just dive in and buy everything I wanted to own. I took a bite. The market traded down. I took another bite. And will continue to do so as the market falls until Im full. The stock market is full of suckers. They bought their stocks hoping there was someone there to buy them at a higher price. When that disappears, they dont have any reason to own stocks, so they sell. Selling in this age doesn’t mean calling your broker to bail out of stocks. it means moving money aroundin your 401k , from a mutual fund to a money market. From a hedge fund to a CD.
Individuals are capitulating. They just dont know it. They are being told to not sell their stocks. Most dont own individual stocks. They own shares of funds. Which they are moving out of equity funds and into money markets or CDs. The wealthier are pulling money from Hedge Funds. In their minds they aren’t selling shares. They are protecting themselves, they are moving money. What they dont realize is that yanking their money from the funds, forces the fund to liquidate their assets in order to fund the withdrawls.. Mutual Funds, Hedge Funds ,are selling to meet the withdrawls. Forcing the markets down. How freaked out are some of these people going to be when they have to pay taxes on capital gains in funds they sold at a lost ?
We are also seeing a corporate margin call reminiscent of the Tech Bubble Burst of 2000. Back then execs of companies would take out loans against the stock they owned in their companies. Back then they borrowed against 50pct or more of their stock values, never imagining the stock prices could crater. These days, execs are borrowing against their stocks again. Never imagining that the stock prices could crater to these levels. Well they have, so execs are being forced to bail out of their own stocks. I wouldnt be suprised to start reading that companies that sold puts disclosing that they
Hedge Fund, Mututal Fund, Exec Selling is pushing supplies of shares far beyond demand. Which forces prices down
I dont know how low the market will go, and I know this is very self serving, but from a portfolio perspective, the lower the better. I have been saving cash for a rainy day, and its been pouring all week. Im in no rush to buy all the stocks that I want to buy. If the market goes down, i collect dividends on the stocks i bought and I get to buy more of the stocks I like at a better price. If the market goes up, I can stop buying, collect dividends, and start saving for the next rainy day. And there will be another..
We have come down 6,000 Dow Points from the high. It can only go down 8200 more. At some point before then, the companies become so cheap, you just buy them outright. At some point before then, the shorts start covering to lock in gains. Either way, I waited all this time to go long, Im in no rush to buy. But buy I will. Im going long.
This is the number one reason why people lose money in the stock market. The primary trend (flow of the river) is down and people seem to want to buy the bottom. Always trade in the direction of the main trend and let the flow take you away. Trends persist.
Hint: Gold and precious metals are trending up. Don’t listen to the ‘noise’ in the news etc. Buy gold and gold stocks and let the primary trend take you with it.
The Stockologist
Comment by Stockologist -
In the 11th grade, we learned about the Great Depression. My teacher asked, “WHen everybody around you is selling all of their stock what would you do?” I raised my hand, “I would try to buy as much as I could afford at the low price and wait out the storm.” He looked at me and said, “Well, that’s not what most people did back then.”
I had been invested in a GNMA (same place I was during the dot-bomb), I switched to some relatively aggressive stock funds about a week ago.
n.b. a preview option would be nice, the form box on my browser is clipping the coment field
Comment by Ian M. -
Great couple of posts on going long. For educational purposes to illustrate your thought process, could you give one example of a stock you have bought recently, or were considering buying but decided not to, along with the analysis you did to reach those conclusions (what factors did you look at besides the dividend yield? If you are concerned about mentioning a specific company, perhaps describing it without mentioning it’s symbol would work, althouhg as a learning experience it would be a little less informative in that it would make it far harder to replicate the process. I think describing your thought process in greater detail would make the posts even more helpful. Thanks in advance.
Comment by Andrew -
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Here from France, we are totally astonished with this crisis,
and the european economy is also affected as we live in a globalised wordl.
This crisis will not end in few weeks after the rescue plan made
in EU,US,Japan,Gulf… The worst still to come, the subprime trouble
was the emerged part of the iceberg. Still to come the credit card default payement of us consumer.
As well the next scandal will be the CDO and the CDS.
We can just say it is not yet time to buy stock,
and the bottom has not been reached. The worst is still to come !
(sorry for my english)
Comment by coolshen -
Capitulation? Buying opportunities? That’s what I was thinking when
the NASDAQ hit 4000. I’m not getting my ass kicked again. Earnings
drive stock prices and, I’m afraid, the poor earnings are just starting
Plus I have zero confidence in the Keystone Cops we have working on
the economic crisis. Paulson and Bernanke seem to think they can borrow
their way out of a debt crisis and their solution is to give hundreds
of billions of dollars to the bankers who already ran their businesses
into the ground once. I doubt Bush can even balance his own checkbook.
If these firms we’re really “too big to fail” then the CEO’s shouldn’t
be rewarded for gambling with their assets, they should go to jail for
recklessly mismanaging companies so vital to the health of the world
economy. America has been had.
Personally I think it’s smarter to wait on the sidelines for a real
turnaround and buy on the way up, instead guessing the bottom and
trying to catch that falling knife.
Comment by Steve R -
Mark you are my idol
Comment by Erick -
Where’s the bottom? Once you clear away the leverage, how much real value is there under the smoke and mirrors? Mark, you can afford to take the long view, because even if the bottom is as low as 2000, you’re not going to miss any meals.
People who are looking at retirement in the next couple of years can’t afford to think in terms of “locking in their losses”, they’re just trying to stem the tide of red ink before their retirement plan becomes “work part-time at Burger King until I die.”
Frankly, you’re right that the time to get out was a year ago, when the market peaked. But there’s no reason to believe the market has bottomed out, the deflationary spiral continues and although it will certainly continue until it finally reaches the true floor, given that nearly everything is a “hollow company” with no reason to exist except to keep trickling out stock issues, there’s a lot of dead weight to shed.
If you can afford the time, the right thing to do is go back to old-fashioned fundamentals, buy companies that actually make things themselves and distribute dividends. But the market has been in a cycle of self-fulfilling analyst predictions that had no connection to such pedestrian realities for so long, that information is actually pretty hard to find and there aren’t any funds to get into that specialize in it (at least not available to the average person moving sliders on their 401K distribution).
Mutual funds and 401K’s on autopilot are the only things keeping the market afloat right now. And as people open their statements and see just how far underwater their stocks are for the last year, that’s going to go away. We’re not within sight of the bottom yet.
–Dave
Comment by Dave Rickey -
Markets are a mess. Noone knows what to do really.
http://apaintersdiary.blogspot.com/
Comment by Rachete -
Mark can you please but the San Diego Padres and make them a winner?
If you did but the Padres fire Sandy Alderson, Grady Fuson, Paul Depo,and Bill Gayton they do not know how to scout talented players.
Comment by ryan -
Big Ben Graham and his proteges in the value-added investment world knew the score seventy years ago.
Buy to own. Buy value. Solid P/E. Strong cash flow. Annual dividend. Low debt.
Find a CEO with a blood stake, either by name, family, of self-purchased options.
The man in Omaha, a Hall of Famer and Grahamite, put it best. Buy in the Bear. Run from the Bull.
Think of your investment life as a punch card with a maximum of 20 holes.
Each hole is a sell or a buy. That’s your lifetime. Just 20. Once you’ve made 20, stop.
It’ll make you use your head.
And don’t think for a second about what your friend, your brother, your boss, or your friend on CNBC is buying. Buy for yourself. Buy because the numbers say so. Leave the derivatives to the fools and the worshipers of Quantum Math.
Your money is your own. It does not belong to some EMT huckster. Learn how to inveest it. And go long, go very, very long.
Comment by Mark (Not Cuban) -
you pathetic republicans kill me….
…. and the entire country…. with your norrow minded selfishness.
Way to go Mark! You’re the Asshole of The Day, atleast to me and anyone else who cant afford groceries, gas, mortgages, or anything else right now… we will all suffer better knowing that atleast the rich assholes like you that got us in this mess will atleast be getting richer and becoming bigger assholes… how more unamerican can you be Mark, really?
Comment by eddie -
Paulson just spoke again. Expect 7000 on the Dow before the end of the
week.
Comment by Ralph Harrison -
Look at the stock market in japan and you know what can happen to the stock market.
Only the funds companies and the banks advertise that in the long, long view the stock market goes always up.
It’s always the same story they tell you:
If the stock market loss is 5 percent: oh no it’s only a small loss, don’t sell.
If the loss is: What a great buying opportunity, don’t sell, it would be a big mistake
If the loss is 30 percent or more: Don’t sell, it’s too late to sell. In 10 to 20 years the stock market will reach new highs.
The reality is, you should sell, wait and see what will happen. Because there a always new investment opportunities and it’s not to late to enter the market at a later time.
Comment by Michael -
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One other thing. The cds market has overleveraged the entire world on a scale never seen before. There are no reserves. It was made possible by the “Commodity Futures Modernization Act” sponsored by Phil Gramm during 2000. http://www.bloggingstocks.com/2008/09/15/100-year-crash-mccain-advisor-spurred-62-trillion-derivatives/print/ It took what in effect is insurance and called it a swap instead so that it couldn’t be regulated by insurance regulations. This allowed investment banks and others to use infinite leverage as there were no reserve requirements. They sold crap and attached “insurance” for the crap and so when the crap went to crap as crap does, the insurance policy padded their books. Now the policies are no good and the house of cards is toppling. Problem is, there is no mortar under that house. There are basically little reserves and contracts that have been traded down the line, under the table, passed from court jurisdiction to court jurisdiction. 60 trillion of them with no reserves to speak of. Poof. If it had been intended, it couldn’t have been planned better. With that in mind, I would be careful of the market as we don’t always know the consequences of 100 to 1 leverage at a minimum all over the world will create. This is new territory in this world. Read of the incentives that were put in place which encouraged the stuffing of the world’s gills with this. http://seekingalpha.com/article/73060-why-wall-st-needed-credit-default-swaps
Comment by John -
Unfortunately, most folks panic in times likes these. Peoples’ fears are fueled by media sensationalism. My dad is 62 years old and he has worked a blue collar job for longer than I’ve been alive. Most of his savings are tied up in big mutual fund companies like Fidelity. His problem is this: My dad would like to retire and he is getting more and more worried by the day. He isn’t a sophisticated investor, he doesn’t know which companies’ stocks he’s tied to, nor does he care. What matters to my dad is the ‘total value’ number he sees on his monthly (or quarterly) statement. He notices his ticker symbols getting crushed when he reads the business section of the paper. He is bombarded on a daily basis by doom-and-gloom forecasts spewed by supposed experts on television and the radio.
There comes a point in time when the discomfort becomes too much to bear. People panic and decide to sell, to get out. Unfortunately, the timing couldn’t be worse. Why is it that most folks buy, buy, buy during times of boom (when prices are inflated) …but sell, sell, sell during times of bust (opportunity)? Shouldn’t it be the other way around? I guess rich folks are the only ones that truly understand that. Or perhaps they are the only ones able to capitalize. (Warren Buffett – The Berkshire Hathaway Inc chairman added $8 billion to his net worth in a 33-day period, August 29 to October 1, to reach $58 billion.)
Having said that, I believe the market will go much lower. Dow 7000 isn’t hard to fathom if you look at long term (20-25 year) chart. Then again, Dow 6000 wouldn’t be much more shocking considering all the turmoil going on in the world.
I hope things turn around for the sake of folks like my dad. Like many Americans, my dad earned his money the hard way. Where’s his golden parachute? Where’s his bailout?
Comment by Jim Parham -
Mark,
You better trade. Markets correct their blowoffs and this market has been in a blowoff since late 1994 for starters. Dow going under 4k and then Oil will start rising back above 100. Might take a couple years but China and India demand will make sure of it. This market is done for a long long time other than trading.
Comment by John -
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Go Long and GET LOUD!
Go hoosiers!
Comment by Manish Jain -
capitulation is an interesting idea.
Comment by nathan -
How about a 10th of X every month for 10 months?
Comment by Nav -
Hi Mark, (and readers)
Are there any websites that just analyze stocks that pay dividends?
Sorry for the n00b question.
Cheers,
Mike
Comment by Michael -
Mark,
I am not American but it surprise me that there seems nobody
is blaming the war for this crisis, I mean the art to war says
it: A long war will ruin a country, how come Americans are not
pressing their government regarding this?
Thanks for writing from the Heart,
Carlos
Comment by Carlos -
John Maynard Keynes
From the General Theory, chapter 12:
Investment based on genuine long-term expectation is so difficult to-day as to be scarcely practicable. He who attempts it must surely lead much more laborious days and run greater risks than he who tries to guess better than the crowd how the crowd will behave; and, given equal intelligence, he may make more disastrous mistakes. There is no clear evidence from experience that the investment policy which is socially advantageous coincides with that which is most profitable. It needs more intelligence to defeat the forces of time and our ignorance of the future than to beat the gun.
Moreover, life is not long enough; — human nature desires quick results, there is a peculiar zest in making money quickly, and remoter gains are discounted by the average man at a very high rate. The game of professional investment is intolerably boring and over-exacting to anyone who is entirely exempt from the gambling instinct; whilst he who has it must pay to this propensity the appropriate toll.
Furthermore, an investor who proposes to ignore near-term market fluctuations needs greater resources for safety and must not operate on so large a scale, if at all, with borrowed money — a further reason for the higher return from the pastime to a given stock of intelligence and resources.
Finally it is the long-term investor, he who most promotes the public interest, who will in practice come in for most criticism, wherever investment funds are managed by committees or boards or banks. For it is in the essence of his behaviour that he should be eccentric, unconventional and rash in the eyes of average opinion. If he is successful, that will only confirm the general belief in his rashness; and if in the short run he is unsuccessful, which is very likely, he will not receive much mercy. Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally…
Comment by Chris -
I can’t criticize anyone who wants to convert everything to cash right now, at
least until they can see some semblance of quasi-predictable movement vice
multi-percent drops on a daily basis – the risk/reward is pretty heavy in the
numerator presently in such a volatile and heavily downward vectored market.
Comment by stockbubble -
HAHA Mark the opportunities today are endless, a hurricane came through this week and you have that special privilege to pick up the pieces. Im in college Im poor and an amatuer investor and today looked like the rays were starting to shine through. You were right about going long. I was a kid when you bought the MAVS and you’ve got a growing crowd, down here in CC, who hate the damn spurs and treasure your MAVS. I think I can say from everyone that we cant wait til you buy the CUBS!! Other than the long history and the money you can make by turning the team around, why do you like the CUBS over other teams that may appear on the market this year?? Oakland Raiders maybe…?
Comment by Andrew B. -
Pingback: jason fager -
Good job Mark. I think you pretty much nailed this one. This is capitulation and it’s only a matter of days, if it hasn’t happened already, that a bottom is put in. Great call!
Comment by Greg Feirman -
I hope that the people that read this post do so in the right context. Mark, you have the benefit of investing a large amount of money for a long amount of time. Not Warren Buffett long, but ten years doing anything is a long time. I hear people that say, “Great post!” or,”Thanks for the ideas!” They fully expect that your comments on your own investing strategy will set them on the road to billions. (WARNING: What works for Mark will NOT work for you) Investing in the stock market is fun and can be addictive, but it can also take as many hours as a full time job. What Mark doesn’t tell you that he only sleeps about 4-5 hours a day, so while most of you are sleeping an average of 56 hours a week; Mark spends that time on reading and research. Although, I am still in the sub-billionaire category, this is the same strategy that I take. I’ll sleep when I’m dead!
Comment by TomH -
Excellent advice. Would you define long as 5-10 years out? And for the average investor, after “long” has been met, what would convince you to pull out of a given stock, be it diversification, another sharp downturn, etc?
As an aside, at this point in time, I wonder if it would be prudent to run a non-scientific experiment pitting a seasoned broker versus a chimpanzee. At least we know the the later will definitely have a job in the foreseeable future 🙂
Comment by TeknoMage -
I agree with you Mark, it’s time to dip our toes in the market. Unfortunately I don’t have any dry powder left. I guess the old wall street saying ” The market can stay irrational longer than you can stay solvent” applies to me. You don’t need anyone to mow your grass do you………no seriously?? Love your insight
Comment by chris -
Please buy the Cubs! And do something bold to get Dirk some help while
you are at it. I can’t take another postseason sweep or another 20% down
week! There’s got to be another NBA owner out there just shellshocked
by this financial mess who’s looking to give away somebody (ahem Camby)
to make their personal books look better. Can you sign Ricky Rubio or
Brandon Jennnings now without having to draft them?
Comment by cubvendor -
That. Is. Brilliant.
I wish I understood economics better, but I am a politico, not an economist (my Econ professor said that to me…repeatedly) Except even I recognize that there is a political problem – law makers at every level are scrambling to change their message calendars leading up to November 4th to read:
Week 4 – Economy
Week 3 – Economy
Week 2 – Economy
Week 1 – Make sure we talked about the economy enough
There is no way that every politician won’t be scrambling (to use double-negatives and) to find a way to do something so they can claim they at least tried to do something. In Florida, it will come in the form of drastic property tax reductions which benefit property owners (renters won’t see any drop in rent price, ever) and not the people who are going to feel the brunt of inflation.
The end result is a plethora of plans and proposals, ideas and legislation, all aimed at fixing a problem with no single source, no single individual/corporation/industry to blame, and global consequences. And it will all be designed and enacted by people who copied off me in Econ…
Comment by Lloyd -
Better to buy at the bottom of the market obviously.
Comment by Sean -
maybe I am not the first person to say this, but mark cuban is successful not just at business, but also as a human being
Comment by Phillip Conti -
I heard a woman on the radio this morning. She sold all of her stocks and mutual funds out of her retirement portfolio this week. She’s 40 and is employed, so doesn’t need the cash.Just too scared. What a mistake.
Comment by rick -
By no means am I a large investor. In fact, my exposure to this is simply my 401k. I’ve tried and tried to understand how excellent companies can continue to go down in price. Your comment on people moving money and Funds needing to liquidate positions to allow those moves….I never really thought about that adding volatility to the markets. I look forward to any future entires you may put up here. Good luck besting this market. And how did the Cubs bid turn out? Any word?
All the best,
Matt
Washington, IL
Comment by Matt S. -
I’m so grateful for your balanced fearless voice.
Don’t ever stop telling it how you see it.
There is such a need for people to recognize that by buying into
the panic they only make it worse. The market will come back albeit
slower than in the past. We should tighten our belts. The gross
materialism of the last two decades needed to stop.
I wish I could give you a hug and thank you in person.
Karen
Comment by karen -
If I had money free right now, I’d definitely be swooping in right about now.
Comment by researchrants -
I’ve always wondered. You have what amounts to be a big pile of cash,
that as you say you’ve been waiting for a rainy day to invest.
What drives you to invest that pile to make an even bigger pile? Flexing of the mind and
seeing your investments “beat” the market? I know you do copious amounts
of research prior to investing in anything, so we can assume you’ve been
treading water just waiting to make what you consider smart buys.
Why not just take the day off and play golf instead?
From MC>
Cause Business is the ultimate sport and I love to compete… I hate golf. I would rather do this any day of the week
Comment by Kevin Barton -
Mark would you buy Starbucks right now?
Comment by Greg -
Your best words of wisdom in this post:
“Once I made the decision to go long, I didnt just dive in and buy everything I wanted to own. I took a bite. The market traded down. I took another bite. And will continue to do so as the market falls until I’m full. The stock market is full of suckers.”
Comment by Michael -
Definitely time to start getting back in. Contrarian Investing 101.
Thanks for sharing your investing philosophy with us.
Comment by Kevin C -
Its a bold move Mark, but in 10 years you may very well become the richest man in the world.
Comment by Jack -