September 2008 will go down as one of the most gut wrenching rides in stock market history. I remember during the tech boom when many analysts said that the fundamentals were thrown out the window during those lofty times. These days, it seems as if fundamentals have also been thrown out the window, but in the sell side direction. The famous words of economist John Maynard Keynes ring so true these days, “The market can stay irrational longer than you can stay solvent.”
For those who have kept capital on the sidelines for these once in a lifetime opportunities, then kudos to you. When I refer to “capital” I am talking about plain old cash, and not the pretend stuff coming out of a HELOC. My next set of plays will involve easing into the SPDR S&P500 ETF (SPY) over the course of the next year, to year and half. I will be taking up equal dollar positions in the S&P 500 every quarter, if it gaps down more than 5%. This will come up to about 4 to 6 buys. I don’t know where the bottom is, but the downside risk is decreasing by the week. A study of the last 3 market crashes in history helped with my strategy. I wanted to see what happened 12 months after the S&P 500 hit bottom. Now I won’t pretend to predict a bottom, but easing into it is more of a possibility (I took up my first SPY position a few days ago… could have waited.) One year after the tech bubble crash, the S&P 500 rose 28%.
One year after the Asian currency crisis, the S&P 500 rose 21%.
And this is what happened one year after “Black Monday”:
Let’s hope history treats us kind.
Stock position: Long SPY.