The Current Compulsion: Bottom Calling

A couple of bullish calls noted in the FT. First you probably heard Bill Miller, the manager of the Legg Mason Value Trust Fund (LMTVX) thinks a bottom is in.

You probably also heard him get derided in a couple of places for already calling a bottom in the spring and for being down almost 60%.

One thing is certain: The real bottom will be met with much disbelief and then some hindsight bias will no doubt point to some obvious things that most people will not see in real time.

Also in the FT is a call from UBS that the S&P 500 will close 2009 at 1300. That is an interesting number. In mid November I had a quick post about some sort of massive snapback met by another rundown in the end, and the number I tossed out was 1300. While 1300 was not really a prediction, a logical point is that if you look back in market history there have been massive moves up, 30, 40, 50% during very bad times. To say one of those is coming when the selling really ends (even if the fundamentals are forever broken and the country is financially ruined--which is not what I think) is far from a bold prediction. Of course whether it would fit neatly into a calendar year is the wrong focus.

The Harvard Endowment is making news for a swift drop in a very short period of time. I've been writing about the way endowment funds invest for quite a while. There is a fascination with these funds (I too am fascinated) but I think a line needs to be drawn between learning from them and trying to emulate them. The first post I can find on not emulating them is a post I wrote in October 2007. The guys running these funds are smarter than we are, but no one is 100% correct all of the time.

Comments

[cyclingscholar:]

Ya have to be cheeky to recognize a bottom...two cheeks, to be specific.

2008 Dec 04 02:59 PM

[Roowns:]

I agree. If market doesn't make a new low for a month or two and volatility drops after crush this doesn't mean it's over. It just means market already included the bad news into prices and waits for the next set of news, that probably will be worst.
But usually, in the face of mountains of evidence to the contrary, people will pin all their hopes on the slimmest of doubts.
I expect some massive swings throw the end of this bear market, as investors tend to be impatient and try to guess the bottom much earlier then the economy supports.
For now I look forward for testing the lows in January, and it's a good chance will break.

2008 Dec 04 03:05 PM

[Income Tax:]

When Buffet is wrong or probably is wrong this time, who can be right? But the world is not ending, just the turning point will be the most painful point. GM bankrupt?

2008 Dec 04 03:52 PM

[Chris B:]

The only bottoms out there are people calling bottoms.

I really enjoy those people who sold everything at some point in the V and think they will buy everything back at a lower point in the V. You know, when they "see some recovery in prices." What a plan. They are toast if we have another 30% fake-out bear rally because they'll sell again as soon as prices go back down.

2008 Dec 04 05:02 PM

[sickofthehype:]

Has anyone considered the coming flight out of bonds? There's trillions that will most likely start going into equities, metals, and real estate.

2008 Dec 04 07:09 PM

[markettaker:]

This article compliments what you are saying about "market bottoms"

No one knows where the market is going but probabilities suggest lower...

www.gotoguy.com/?p=548

2008 Dec 04 07:42 PM

[Jackson Cash:]

"People whom pick bottoms often end up with only stinky fingers"

2008 Dec 04 09:31 PM

[Anthony Alfidi:]

I no longer share your fascination with university money. The guys and gals running endowment funds are by no means smarter than the rest of us. Many of them copied verbatim Dave Swensen's playbook without absorbing his caveats about using too many intermediaries. They apparently also have difficulty with liability driven investing (something the biggest pension funds have a handle on).These "smartest people in the room" were chasing hot tech trends in the '90s when those blew up.

How many endowment managers got their jobs because of alumni connections and long pedigrees rather than financial acumen? University one-upmanship about which school has the most "innovative" money manager no doubt plays a role in hiring. Let's see if university boards have the gumption to fire them.

2008 Dec 04 10:42 PM

[upgrayed:]

It is a bottom, I'm calling it right now! CNBC did you hear me???

2008 Dec 04 11:03 PM

[Khoff:]

Hello Salary. Buffett (which is spelled with double tt) nevers tries to call market highpoints or lowpoints. His NY Times editorial stated that now is a good time to invest in US stocks if one is a long-term investor (although the market could acutally go lower before it hits bottom and starts rising again). He invests in individual stocks of good companies when he believes the market price (market capitalization of the whole company) is half or less than the fundamental business value (intrinsic value). He then sells in the future when the market value rises to equal or exceed his assessment of the intrinsic value of the business. Or sometimes he holds it indefinitely as in the case of Coca Cola. I encourage you to read a few books on him as well as a few of his Berkshire Hathaway annual reports at berkshirehathaway.com.


On Dec 04 03:52 PM Salary wrote:

> When Buffet is wrong or probably is wrong this time, who can be right?
> But the world is not ending, just the turning point will be the most
> painful point. GM bankrupt?

2008 Dec 14 05:43 PM