Two Money Quotes from John Serrapere

John Serrapere has a new article up at Index Universe, and actually there are two money quotes. Overall the article is an assessment of where things are now, what that might mean in the in the future, and how he is positioning his portfolio.

For now he says he is going to ignore short-term bullish signs and focus more on longer term fundamentals.

The first money quote is as follows:

Given the high degree of economic uncertainties... I’ve got to wonder what is worth buying and holding onto at this point.

The reason I think the quote is useful is that it underscores the idea that investing is not easy. I believe there are ways to make it easier on yourself, but it is not easy. Everyone has his or her own process and perhaps given the totality of Serrapere's process this is a particularly trying time. I don't know if that is the case, just an interpretation. An occasional reminder that this can be tough can be a psychological helper.

The other money quote:

The AI (Arrow Insight) 75-50’s primary objective is to capture 75% of the S&P’s upside and 50% of its downside.

This is sort of what I try to do. I say 'sort of' because I don't quantify it so succinctly, and I only try to sort of do that when the market is in a bear phase, more correctly when demand for equities is unhealthy or questionable.

Long-time reader Leisa echoed my sentiments the other day about believing in adding value by avoiding a lot of the downside- or, as I have been saying, avoiding the full brunt of down a lot. Yesterday I disclosed having added a little SDS to client accounts late in the day on Tuesday. An hour or two into the day on Wednesday, a reader said I was too early. Well, maybe; but the context here is trying to avoid the full brunt of down a lot, which now has a higher probability than it did a couple of months ago when the market was much lower.

So in that context, there is no way to be right or wrong after less than three hours of trading. It is not important how I protect against what I think the market might do, but what is important is for you to figure out what you might do in case you think the market could have another big run down -- even if you would do nothing. Even if you are in the everything is speculation crowd, there is no reason you can't have an opinion about what the stock market might do. Just preparing mentally for a big decline with no action can help with enduring such a drop.

It seems like every time the market pukes down, very few people are prepared for it. A point I have made before is that recognition that there is more risk to the downside can, if nothing else, help prevent you from panic selling at the low.

Comments

[Black Swan:]

Roger-Excellent article as usual. You articulated exactly what I am going through with my portfolio. I am retired and suffered a 32% pounding in 2008. I want to try to make a good portion of that loss back but I sure as hell had better think what would happen to my wife & I if we took another 32% shot this year. I am keeping 5 years expenses covered with BSV,WIP, TIP along with cash for 2010. Rest is well diversified in equities and REITS.

Jun 25 12:47 PM

[Larry House:]

What do you use as trigger points, Roger, to avoid the worst of the downside? It is one thing to say miss some downside, but the harder question is how to know when to get out. How do you know the market is "puking"?

Jun 25 02:12 PM

[Roger Nusbaum:]

I own WIP, that said it will get hit hard as it did before if the dollar goes up a lot


On Jun 25 12:47 PM Black Swan wrote:

> Roger-Excellent article as usual. You articulated exactly what I
> am going through with my portfolio. I am retired and suffered a 32%
> pounding in 2008. I want to try to make a good portion of that loss
> back but I sure as hell had better think what would happen to my
> wife & I if we took another 32% shot this year. I am keeping
> 5 years expenses covered with BSV,WIP, TIP along with cash for 2010.
> Rest is well diversified in equities and REITS.

Jun 25 02:18 PM

[Roger Nusbaum:]

the initial breach of the 200 DMA (which was back in December 2007) was the catalyst to start. from there I reduced exposure slowly as we went along--it doesn't take too many trades to no longer look much like the market. Some sales were top down decisoins like I want to reduce energy exposure and some were fundamental decisions like I think BAC buying MER is a bad idea.

being faithful to the 200 DMA is perhaps science and the rest art?


On Jun 25 02:12 PM Larry House wrote:

> What do you use as trigger points, Roger, to avoid the worst of the
> downside? It is one thing to say miss some downside, but the harder
> question is how to know when to get out. How do you know the market
> is "puking"?

Jun 25 02:22 PM