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Does Anyone Else Miss Stock Picking? 12 comments

by: Joshua Morgan Brown May 28, 2009 | about: DDM / DXD / FAS / FAZ / SDS / TNA / TZA    
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Over the long holiday weekend, I was asked the same question in different settings by friends, neighbors and family members again and again. “Is the market going to go up or back down from here?”

Don’t get me wrong, it’s a nice change of pace from the big question from January and February, “Why would anyone ever be in the market ever again?” or “How much was your bonus, pig?”

That said, I hate the market direction question and I’m sick of it being debated on every street corner, on every economic or financial website and on business television day and night.

And then I came across Michael Santoli’s column in Barron’s this week, Shell Game, and one paragraph in particular completely summed up how I’m feeling about the market these days. Santoli’s quip is not a tidy enough answer to deliver to my Poland Spring delivery guy the next time he asks me about the market, but I think you guys will understand (italics for emphasis are mine):

The market isn’t cheap, as measured by, say, the Dow industrials’ trailing price/earnings ratio above 40, or even the S&P 500’s P/E of 17 on 2009 operating-earnings forecasts. Some conservative valuations based on long-term normalized earnings settle around a fair value of 900 for the S&P 500 (we’re there now). Yet the median P/E of S&P 500 companies, based on 2009 forecasts, is 12.7,, meaning half the index is cheaper than that. The whole isn’t a bargain, but there are plenty of well-valued particulars.

OK, so the market is about where it should be, and not undervalued…but half the S&P 500 is notably cheaper than the heaviest-weighted names. OK, this is starting to feel constructive and purposeful again!

That’s exactly where my head is at right about now. I’m sick of the buy the index/short the index trade. The volatility was fun while it lasted, watching guys buy the triple long ETFs in the morning and fade the rally with the triple short ETFs in the afternoon, but the VIX is back down to 30ish and as BB King once sang, “The Thrill is Gone“.

I’d love nothing more than a range-bound market once again where the macro wasn’t all that mattered and a stockpicker could not only out-perform the broader averages, but beat the rest of the sector as well with good timing and well-done homework. The lockstep up-and-down thing has lost it’s appeal to me (and it’s profitability) as everyone is now doing the same trade. It’s crowded and boring.

I’ll let the rest of the blogosphere debate the concept of whether or not the market has seen the lows, has to retest the lows, will break new lows, is a bull market, is a bear market, is a cross-dressing wombat market….I’m so over that discussion.

Let the market do what it’s going to do, up or down, just please let it start to reward research and insight again.

The index trading thing is so five minutes ago, like Facebook or this little Adam Lambert girl that everyone thinks is cool (you will hate yourselves in 5 years and cringe, he’s a huge cheese).

Thanks for summing up my outlook and hopes for the coming market environment so succinctly, Santoli. I needed that.

Anyone else want to start picking stocks again? Let’s have some fun and make some money in ‘09, bull or bear market.

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This article has 12 comments:

  •  
    see also: Shakespearean Lesson for Market Commentators:

    thereformedbroker.com/.../
    May 28 08:58 AM | Link | Reply
  •  
    Good article. Call me old fashioned but I never went in to the day trading thing. I have been opening new positions lately. Notably Dryships (DRYS) @ $4.9 and Agrifeed (FEED) @ $3.9. I'm looking primarily at Brazil and China for bargains and some of the positions I opened on the ride down are close to being back in positive territory. (VIVO) and (NETC). There are good buys out there so happy bargain hunting to all.
    May 28 09:10 AM | Link | Reply
  •  
    answer to your question - no!
    May 28 10:36 AM | Link | Reply
  •  
    Freya, I completely agree, and PE ratios based on trough earnings (maybe) are very far down on my list of indicators.

    The fun part is doing what you said, finding where the "E" is getting bigger

    On May 28 09:43 AM Freya wrote:

    > You can treat ETF/ETNs as individual stocks from a charting aspect,
    > I know I do.
    >
    > Wait until this this quarters results are factored into your current
    > 40 PE. You should really do some historical research into the PEs
    > during prolonged Earning downcycles.
    >
    > I've seen a PE of a 100 on the Dow, even Negative earnings for a
    > quarter. PE's are not some sort of "sacred cow" to bow before.<br/>
    >
    > What you should be doing is taking a look at what the "write offs"
    > will do for sheltering future earnings of otherwise Solid Companies.
    May 28 12:00 PM | Link | Reply
  •  
    Monday thru Friday we have 12 hours a day in which to buy or sell shares, and while we sleep Asia and Europe do their thing, then we get our turn again. I'm ofcourse counting Pre-Market and After Hours. If you are able to watch your positions 12 hours a day, you will always get blindsided during the other 12 hours. The solution is the daytrade only strategy. It's a very difficult strategy, but it's the only way to preserve capital. You still have to do your due-diligence whether you use individual stocks or ETFs. You have to devote your full attention to the market. If you don't know what I meant about being blindsided, then you don't have enough experience to be in the market in the first place. You also need to have more than $25,000 to daytrade freely because of NASD Rule 2520.
    May 28 07:39 PM | Link | Reply
  •  
    I'm with you. It's not hard to find beta to play with. Just today one shipping stock I own jumped 30%. Travel broadens one.
    May 28 09:28 PM | Link | Reply
  •  
    FAS is the only thing worth trading. 1000 shares - support price of 8.50. The government is buying - so you are selling. Covered calls one to two months = buy low, sell high. For volitility, keep anything less than 8.50. Any questions?
    May 29 12:38 AM | Link | Reply
  •  
    No questions since you are new here. FAS is a Buy and Hold for One Eye and Freya. I'm in DXO because of them.

    They don't trade.
    May 29 12:56 AM | Link | Reply
  •  
    Look at how happy the adorable little girl in Joshua Morgan Brown's picture looks. She looks like she thinks she's taking a picture with "Goose" from the movie "Top Gun".

    *ZING*
    May 29 02:27 PM | Link | Reply
  •  
    lol!

    u got me

    thx for reading


    On May 29 02:27 PM Bunse wrote:

    > Look at how happy the adorable little girl in Joshua Morgan Brown's
    > picture looks. She looks like she thinks she's taking a picture with
    > "Goose" from the movie "Top Gun".
    >
    > *ZING*
    Jun 01 08:42 AM | Link | Reply
  •  
    If you are predominately a bull then pick your individual stocks on the long side and soft trigger FAZ/ERY for a hedge. The inverse ETFs are a great deal for the retailer. An easy hedge to neutral at 1/3 the value of your long positions and losses are not infinite.
    Jun 02 03:12 PM | Link | Reply
  •  
    ETFs I am tracking for the past month: FXP SRS and UNG. projectplum.com
    Aug 03 12:12 AM | Link | Reply
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