Eight Areas to Consider About This Market

To say that we live in historic times would be an understatement. We’ve all been shaken by more earth-shaking news in just the past few months than we’ve seen in the prior decade.

There’s been the takeover of Fannie Mae and Freddie Mac, the disappearance of Lehman Brothers, Bear Stearns, Washington Mutual and Wachovia, the TARP rescue plan (which itself has changed shape many times since being passed) and now the potential bailout of the Detroit automakers. Oh, and did we mention hedge fund redemptions and failures, and now commercial real estate problems?!?

And the market, of course, has reacted. With most indexes sinking to fresh multi-year lows this week, and more famous financial names (Citigroup (C) under 6!) getting decapitated.

Today, I want to ramble off a list of observations, advice and suggestions for you to consider

Here we go …

1. “This time is different” have been, and always will be, the four most dangerous words for investors. That was true in March 2000, when companies with no revenues were valued at $3 or $4 billion before collapsing 99% during the next couple of years. And it’s true right now, when the market is suffering its worst year in decades, and numerous financial stocks are in the single digits.

Right now, the market’s in the grips of massive pessimism and worst-case scenario thinking. I offer no promises that the bear market is going to end tomorrow or next week. But I can promise you that there will be another bull market, because the economy will come back from this mess, and profits will grow after taking a hit next year.

That bull market will be extremely powerful! In the year following the 10 biggest bear markets ever, the Dow has risen an average of 44%. Leading stocks will do far better. So if you’re one of those people I’ve been hearing from (you know who you are) telling me there won’t be another bull market for five years, keep your head out of the sand. There WILL be great profits to come. It’s just a matter of waiting it out through this bear market.

2. If you’re still heavily invested right now in a bunch of broken stocks and sectors, here’s my advice: start selling. I wouldn’t sell everything right now, however, you must break free of the psychological trap that affects us all … the trap that “I can’t sell because my loss is too big.” Your goal is to make and keep as much money as possible. But that doesn’t mean you have to make it in the stocks you currently own.

If it were me, and I owned, say, 10 horrible stocks right now, I’d probably sell two of them here–maybe the ones with the biggest losses, or conversely, the ones (if any) that have bounced well off their lows. Or I might sell one-third of five different stocks. Either way, I would take some action; I would be active instead of reactive.

Then I would look to piece out of the remaining stocks on bounces. If we get a day or two of rally next week (Thanksgiving week is usually good for the market … though this market has been anything but usual), I might sell another stock, or chunks of another three. There’s no magic formula for knowing how much to sell, but the point is to gradually get out of your losers, and eventually, when the next bull market (or, heck, even a two- or three-month bear market rally) arrives, you can buy new leaders.

I just want to repeat–you should stop thinking about how much money you had, because there’s nothing you can do about it. Instead, realize what you have today, do your best to keep what you have, and build on that figure in the weeks and months ahead.

3. If you’re mostly in cash today, but held on way too long on the downside, take this time to study up on market timing. Learn to read charts (there are many good free sites online), and learn about trend following. I believe, when we look back on 2008, one of the themes to come out of it will be the “revenge of trend following.” People look at me like I’m a dummy when I talk about a trend (as opposed to boldly predicting where the market will be in six months), but it keeps me on the right side of the major trend, which is why I’ve avoided most of this mayhem.

4. As for the auto bailout … none of the options are great. My personal opinion is that Detroit should enter Chapter 11 (i.e., re-organization); however, Uncle Sam should then back up much of the debt and back the creditors. That will leave the companies themselves able to re-organize and re-tool. Part of that will come from negotiating with the unions, but part will also come from cutting back (as the airlines have done) the number of models and lines of cars and trucks they produce.

Right now, $25 billion will do nothing but give the companies a lifeline, which will likely be chewed through as the economy worsens (yes, the economy is sure to worsen, even if the stock market does not). We definitely shouldn’t let these firms simply fail. But re-organization is more important than the exact price tag–without it, we’re just kicking the ball down the road.

5. I’m getting a lot of questions about shorting. My best advice: Focus on stocks that have clearly topped out, were big winners during the prior few years, and have not already fallen 80%. Apple (AAPL) is certainly a contender; earnings growth is decelerating sharply, and really, the stock only broke down in early September. AAPL has actually held up well during the past few weeks, but if it rallies up to 105-115, and the market is still in a downtrend, it might be worth taking a shot on the short side. Just be sure to cut your loss short!

Another short idea is First Solar (FSLR), the #1 glamour stock in the #1 glamour sector of the last part of the bull market. It’s already kissed its 50-day moving average once, but another rally back toward 140-150 would be tempting.

6. Stocks and sectors showing good relative strength at this point: Biotechs remain a place to look. While many have taken shots, most are well above their October lows and are worth watching. Cubist (CBST), written here many times, is in relatively good shape, as is Myriad (MYGN), along with bigger medicals like Celgene (CELG).

Education stocks are also in position to do well. Strayer (STRA), Apollo (APOL) and DeVry (DV) are three that are acting well.

Also discount retail, like Wal-Mart (WMT), McDonalds (MCD) and Family Dollar Stores (FDO) are holding up well. I would note, however, that none of these retailers have exciting growth.

7. Also, on a positive note, the broad market (believe it or not) is actually not as weak as it was when stocks crashed in early October. That’s right–even though the major indexes are at new lows, fewer stocks are “participating” in the downmove. On October 10, for instance, a whopping 2,901 stocks on the NYSE hit new lows; this Thursday, the figure was “only” 1,894. It’s similar on the Nasdaq–more than 1,600 new lows in October, and 1,158 this Thursday.

That doesn’t mean the market’s going to stop going down. However, this is a characteristic seen at ALL major market bottoms in history. It’s a first sign that the selling pressures are easing up. I know that sounds odd, but it’s something to keep your eye on.

8. Last but not least, I want to take a few paragraphs to write about something that’s near and dear to my heart: The fact that anyone–whether you’re highly educated or still in high school, whether you went to college or not, whether you’re a 12-hour-a-day blue collar worker or a highly-paid executive–can learn to make consistent money in the stock market.

When I started investing, I had no idea what I was doing. I listened to the people on TV, read some magazines, came up with ideas and bought some shares. And I lost money! When my stock turned for the worse, I held on for months, believing the “long-term” was sound and it would come back eventually. Wrong.

Eventually, I got tired of twisting in the wind, and taking everyone else’s advice, and went about searching for what actually works in the stock market. I learned that valuation was not the cause of good performance among growth stocks, but the result of great performance. I learned that sales and earnings growth, profit margins and the potential for further growth were what counts. And I learned that you CAN time the market–not perfectly, but enough to avoid the devastating bear phases, while being on board the profitable bull phases.

I write this not to brag; I make as many mistakes as anyone! But I make small mistakes, and try to be right big. (As Jesse Livermore said, “Your goal isn’t to be right. Your goal is to make big money when you’re right.”)

Most of all, I learned through much trial and error how to do well in the stock market. Yes, there are potholes, but overall, it’s definitely possible to not only beat the market, but to handily outperform the indexes year in and year out.

My message is this: No matter how your portfolio has performed during the past year, no matter how difficult you feel the stock market is, no matter how frustrated you might be … you can learn to be a great investor. I’m here to help, of course, providing advice not only of what to buy and sell, but why you should be buying and selling it. But you need to believe that you can make great money in stocks–I know it’s true, because I’ve done it!

So there’s my advice on how to get yourself back on track … or how to stay on track if you’re already there. I’ll be back with some more commentary and ideas next week.

Stock position: None.

Comments

[top_tier:]

You maybe started with reasonable advice until you got to AAPL where you're clueless, earnings there are actually accelerating...you have to factor in deferred iPhone sales

2008 Nov 23 05:35 PM

[Alex Filonov:]

Great article. I don't agree with some fine points, but the main idea is right: stay in the game, try to find what works (long or short), sell when it's right, not when you have to and, most important, forget about "buy and hold".

2008 Nov 23 05:41 PM

[Smarty_Pants:]

Abbreviated reading list that I have found supports the author's claims about making money in the markets. I would suggest reading them in the order listed.

1) "Stan Weinstein's Secrets For Profiting in Bull and Bear Markets" by Stan Weinstein

2) "How To Make Money In Stocks: A Winning System in Good Times or Bad, 3rd Edition" by William J. O'Neil (of Investor's Business Daily)

3a) "How I Made $2,000,000 In The Stock Market" by Nicolas Darvas

3b) "Reminiscences of a Stock Operator" by Edwin Lefèvre and Roger Lowenstein

4) "Trade Your Way to Financial Freedom" by Van K. Tharp

Title 1) is an excellent overview of how to frame the market and know when to be a bull or bear.

Title 2) explains what factors make for a winning stock pick based on historical examples. It also introduces something of an idea of how to approach buying and selling so you will lose less and make more on the price action that follows your purchases.

Titles 3a) and 3b) are stories about applying these sort of approaches in real life and the successes (and setbacks) that were encountered.

Title 4) introduces and covers an aspect of investing/trading that rarely receives attention, namely risk. It is an excellent text on devising a procedure that will help minimize debilitating losses while leaving room for profits to accumulate.

I have found these books to be a great help in making and keeping the assets I put in the markets. I believe they will be useful for anyone who is willing to put a little study and effort into learning how to succeed.

Study them and learn. You will be better off for the effort.

2008 Nov 23 09:05 PM

[closed:]

An organisation using the death of the global financial system to eliminate the nation-state system and impose a global, fascist, corporatist dictatorship upon the world. One does not need inside information to see this; one merely need examine the policies being pushed by the international banking crowd and take them to their natural conclusion. The push for fascism is, to use H.G. Wells' term, an “open conspiracy.”

However, it is always useful to receive confirmation of their intent from inside the enemy camp: According to reliable sources, there is an active discussion within the halls of HSBC's London headquarters of the need for a new Hjalmar Schacht.

This should not be a surprising development. HSBC is the lead bank of the Brutish Empire, and was the political force behind the rise of Adolf Hitler in Germany. And Schacht was the empire's man on the scene, as head of the Reichsbank and then, Minister of Economics under Hitler.

Schacht's role was to impose an even more brutal austerity on a German population whose standard of living had already been destroyed by the hyperinflation which resulted from the savage reparations imposed on the nation after World War I. Schacht helped create the conditions which made Hitler possible, and then helped finance the rise of Hitler, working closely with the Bank of England. Just as the bankers created Hitler in the 1930s, they are now pushing fascism again, this time, on a global scale.

- Corporatism -

Hitler was just one of the projects of the Brutish Empire. Another was Benito Mussolini, the Italian dictator who took office a decade before Hitler, then allied with him in World War II. Mussolini took the title “Duce of Fascism,” a term which can be translated as either Duke or Doge of Fascism, Doge being the highest office in the Venetian system. Behind both the Hitler and Mussolini governments lay a complex of imperial financiers and corporate cartels, which used the governments to keep the people in line. The German cartels, many of which came together to form the infamous IG Farben, were actually creatures of the Anglo-Dutch Liberal system; they, like Schacht, helped finance Hitler and build his war machine for the purpose of having Germany attack Russia--having rivals fight debilitating wars against each other is a specialty of the Brits. It was only when Hitler turned his guns west toward the heart of the empire, that the oligarchs were forced to defend themselves against the monster they created.

The purpose of this corporatist movement was to eliminate the role of the nation-state as a force in world affairs, and replace it with a system run by financial houses and corporate cartels. There were fascist parties in all the major Western nations in the 1920s and 1930s, including the U.S.A., where the Morgan and du Pont interests tried to organize a coup against Franklin Roosevelt, in a plot exposed by Gen. Smedley Butler, in 1934.

The coup against Roosevelt was thwarted, and FDR led the United States and its Allies to victory over Germany and Italy in World War II. The tools of fascism had been defeated, but not its imperial core. This corporatist movement resurfaced in a big way with the 1968 Bilderberg meeting in Mont Tremblant, Canada.

At that meeting, George Ball, a senior banker at Lehman Brothers and a major figure in the Anglo-American Establishment, gave a speech outlining the need for a new structure to replace the “outmoded” nation-state. Ball called this new structure the “world company,” an explicitly corporatist formulation. This “world company” would, in the view of its sponsors, take control over raw materials and other resources worldwide, allowing the empire to use them as it saw fit. Nations, it was said, were too selfish, tending to view the resources within their borders as theirs, to be used for the benefit of their own people.

Fast-forward to today, and look at the world from that perspective. This world company approach has largely been implemented, under the name globalization; nations everywhere are dependent upon the empire's financial markets for their funds, and dependent upon the empire's cartels for many of the necessities of life. Though we do not--yet--have the jackboots of Hitler and Mussolini, we do have the corporatist fascism they represented, and that system is coming to the fore under the guise of bailing out the financial system.

- Debt Overload -

It should be obvious to all thinking persons by now, that we cannot solve a debt crisis by taking on even more debt. All the bailout really does is transfer losses from the books of the banks to the books of the government--and thus to the taxpayer--without doing anything to increase our economy's ability to pay that debt. It does, in fact, do just the opposite, as the physical economy is further cannibalized by the demands of the bailout. We incurred this debt as a result of the decision to deindustrialize the U.S. economy, and switch to a service/finance economy; with every passing year we produce less while we spend more, making up the difference by borrowing from the rest of the world.

Wall Street financed this expansion of debt by creating an ever-wilder series of financial instruments. This process, in which debt was treated as an asset, and then that asset used as the basis to create even more assets, ad absurdum, resulting in a mountain of highly over-leveraged securities and derivatives bets which far exceeds the debt-carrying capacity of the economy. The same is true, to varying degrees, in most other countries of the world.

We are, to put it simply, flat broke, with no prospect of recovering unless we break with the failed Anglo-Dutch Liberal system and return to the time-tested policies of the American System.

- Fascism, or Renaissance? -

The clear intent of the Brutish Empire is to use this crisis to return the world to the way it existed before the American Revolution, a rentier-financier feudalist model coupled with the modern technology of "Big Brother." This is explicit in the call for a new Schacht, but it is also implicit, at least, in the efforts by the Bush Administration, the Congress, and the Federal Reserve to bail out the system. From the insane perspective of the financiers, the only chance they have of saving their system is to ram through a savage consolidation of the financial system into a dramatically smaller number of global institutions--giant banks, insurance companies, and a few others, which owe their allegiance to the empire rather than any nation. This would give the Anglo-Dutch Liberal empire even greater control over the issuance of credit than it now has, giving it a greater stranglehold over the peoples of the world. Credit would be largely limited to the financial institutions and the cartels of the empire, eliminating all competition, and accelerating the collapse into a new Dark Age.

The alternative, as laid out clearly by Lyndon LaRouche, is a return to the credit system established by the U.S. Constitution, in which Congress appropriates credit for infrastructure and related projects for the public welfare, and the Executive branch administers the issuance of that credit through a national bank. This method provides the optimum combination of government control over the money supply and the distribution of that credit in a manner that insures the money is used for the most productive purposes. The national bank would issue the credit to private companies via private banks, tapping the entrepreneurial spirit and creativity of the American people. Naturally, this would also require educating Congress and the citizenry in the American System, so that we can make sure Congress follows the Constitution. Were we to do this, we could lead the world into a new Renaissance.

2008 Nov 23 10:21 PM

[Stephen T. S.:]

Mr. Cintolo advocates playing the stock market to make a quick buck which appears to be what a lot of people in the stock market are trying to do these days including those running mutual funds, etc. This market won't bottom until this quick-buck mentality has been eliminated by these traders experiencing massive losses in their portfolios and we have further to go before that day arrives.

2008 Nov 24 12:17 AM

[Richard F.:]

With few words, it's probably the most realistic and encouraging comments I have read for a long time. Nothing we can do with the past but remembering and learning from what we have done wrong in an ever changing economic environment.

Things we have witnessed in 2008 will come back again in a different shape or form, Let's not fool ourselves. We need to stick to basics, fundamentals and make sure we understood what happened. We have seen things in 2008 that one year ago was not even imaginable

Unfortunately, it is not only about trends, bear market, unregulated banking system going down and greedy executives trying to make it big for their own benefit. It is also about understanding this new worldwide economic environment that is actually shaping up. How will it impact on our decisions in regards of the stock market?

I am a firm believer we wil make money in 2009, but before we do well, things might get worst for a while. The good times are actually in the cooking. Sound advices as the one from Michael above are realistic, grounded and will get us safe into 2009 and beyond.

2008 Nov 24 09:29 AM

[mollytjm:]

to 'closed'...not to mention the fact that the u.s. has fiat money...not backed by anything except 'agreement'. in a situation where the financial institutions were allowed to seduce an ignorant public into incurring far more debt than was reasonable, by any standards, it created desperate people, willing to agree to almost anything. scary.

I am long APPL and will remain so. this is a good article and we need to have more openess about all of this. the situation didn't come about suddenly. but to just had over $ and call it a 'bail out' is a terrible idea. the auto industry has to declare bankruptcy and reorganize into companies that actually produce what people want to buy. then, i agree, some help so they can retool is in order.

more problematic is citi! for the gov to back up over 300 billion in loans..where does it end? at some point, the worthlessness of our $ will become obvious to everyone.

yes, the market will come back some day...but it might not be in the country we think we live in right now.

2008 Nov 24 01:09 PM