Now More Than Ever Requires Patient Investing

April Fools! Stocks in U.S. Rise, Led by Banks in Best Start to 2nd Quarter in 70 Years. Now, lets look at the top ten increases in the S&P over the last 30 years, wherein 30% of them happened in the last 21 days (including April Fool's day, how appropriate)! I know I said I don't believe much in technical analysis, primarily because I am not a short term trader, but bear with me since I do look at historical charts.

click to enlarge

The 120-day average has not been wrong, yet quite useful in showing significant trends, including Black Monday, LTCM, the Asian and the Russian Crises, and 9/11 - all easily discernible from the above graph - and all most likely peanuts compared to what we are going through now…

• Each of the big moves have precipitated a big move in the market trend…
• Add in today’s fundamentals (residential/commercial real estate, leveraged loans, monolines, credit crunch, strapped consumer, probably recession, cyclical downturn in banking and real assets, multiple bubbles popping) and where you see the moving average going combined with the aggressive bull run we just came off of, and it looks like we should be prepared for a drop…
• Consider 30% of the of the most volatile pops in the last 30 years occurred this month!
• Look at the peak of the dot.com bubble bursting and look at us today. See anything familiar? Either we are going to rocket upward to continue this dizzying bull market with some of the poorest profits and the scariest macro environment in many decades, or we are in for one hell of a fall.

Do ya' feel lucky??? Those devastating bear market rallies may be here with a vengeance, destined to shake profitable positions away from weak handed short sellers and bears who do not perform and stand behind their fundamental due diligence.

Here is a close-up of 30% worth of the 3 decades top 10 upside pops - extreme volatility and noise. Now, imagine this leveraged 2x, 10x, 30x, or more. Hold on to your lunch!

... And from Bloomberg, hedge funds as a group seem to be facing historically tough times due to the unprecedented volatility. There shorts are getting bashed in the bull rallies. My take on this is - that's what you get for being a short term player. Expand your investment horizons (which is probably very difficult with clients who are demanding monthly and quarterly performance), and use insurance! Isn't that why they call them HEDGE funds?

I, personally, would rather wait with minimal funds under management than put up with finicky clients who would insist on constant monthly and/or even quarterly returns. You (or at least I) can't invest that way. I need time for my investment theses to pan out. It takes months, sometimes several quarters for my "evil machinations" to come to fruition - but when they do pan out they usually more than compensate for the wait, even when adjusted for risks, drawdowns and downside volatility. Trying to make them work by the end of the month will just result in losses and a quest for luck. I can't afford to rely on luck.

Comments

[Independent]

"Either we are going to rocket upward to continue this dizzying bull market with some of the poorest profits and the scariest macro environment in many decades, or we are in for one hell of a fall."

I don't see any dizzying bull markets. I see an economy expanding at a mediocre 2.5% or so, and a stock market barely keeping pace. Try using a log scale on your graphs.

2008 Apr 03 10:58 AM

[jimmy46]

Good blog, you post some of the most interesting stuff
at Alpha

2008 Apr 04 02:22 PM