MDCigan

Investors' Collective Fears Point to Continued Losses

FWIW, you might read this:

seekingalpha.com/artic...

"Okay... So the $37.1 billion number we hear about as Berkshire's "exposure" is bunk. Berkshire is exposed to that number IF the value of both European, U.S. and Japanese stock markets goes to zero. A true Doomsday scenario that, should it happen, essentially means the end of all economic activity as we know it."


On Mar 10 03:26 PM paultaut wrote:

> MDC: At what point does Buffett's Put Play exceed the value of the
> entire Company if the S&P drops below 400 and his company holdings
> drop the same on a percentage basis?

Investor Capitulation: What to Watch Now

Chris,

I enjoy your insightful articles, and normally I am 99% with you, but not sure on this one that the final bottom has to play out this way with another VIX super-spike. 2002/2003 did NOT play out that way:

runningofthebulls.type...

"I keep hearing and reading that the market will not bottom until there is maximum fear and capitulation selling. This is a commonly held view by many investors. But is it true?

No it is not necessarily. Bottoms can be marked by capitulation selling but bottoms are as likely, if not more so, to be marked by selling exhaustion.

In his excellent book Anatomy of the Bear (which I will get around to reviewing), Russell Napier makes the same observation. Napier concluded that at the end of bear markets in 1921, 1932, 1949 and 1982, bottoms were marked by exhaustion selling, not capitulation selling."

Investors' Collective Fears Point to Continued Losses

Paultaut,

Not sure what Buffett has to do with this article? On the other thread, I think it has been ***REPEATEDLY*** explained to you that the puts are European style exercise and CANNOT BE EXERCISED EARLY. It is irrevelant where the S&P goes in the next 12 months. What matters is where it is 10 and 20 years from now, and if it is at 200-400 in 10 years, it means the U.S and world economy as we know it has ceased to exist, and it is time to learn to hunt and live in the wilderness.


On Mar 10 03:26 PM paultaut wrote:

> MDC: At what point does Buffett's Put Play exceed the value of the
> entire Company if the S&P drops below 400 and his company holdings
> drop the same on a percentage basis?

Investors' Collective Fears Point to Continued Losses

Excellent article Chris! Your approach of blending fundamentals with technicals really resonates with me. Just curious, is their a valuation level where the technicals "go out the window"? S&P 400? 300? 200? Is their a valuation level where the cheapness is so extreme that trend is no longer relevant if one can just wait at least 3-5 years?

Headed For a Normal 20-30% Correction

"When people look backwards to see whats coming they often forget that our markets today have evolved. I am in no way saying that large corrections are no longer possible; what I am saying is that any analysis that reads "we will see big corrections because we saw them before" is overly simplistic. So, what was "normal" in the past is not necessarily what we can expect in the future. It seems obvious but when everyone's looking for explanations and making predictions it is easy to forget that past results are not indicative of future performance."

This is certainly within the realm of possibility, but I think this is highly problematic. IMO, the primary tool for making forward-looking decisions and considering possible future scenarios is past historical experience and past quantitative data. If one starts with the premise that the past is meaningless, then where does that leave you? It leaves you at basically making hunches and guesses based on absolutely nothing. My thought is the past represents a combination of both fundamentals and human psychology. I believe human psychology never changes so the cycles of the past are likely to be repeated in the future in a similar (but not exact) way.

Complacency Runs Deep: Time To Sell

"What you should not do is panic, says Jeffrey Kleintop, chief market strategist at Boston's LPL Financial Services via e-mail. His "Five Reasons Not to Panic" include *********"it's just another 5-7% pullback*******, the temporary unwinding of the yen carry trade is nearly over, profit worries are overblown, subprime losses are unlikely to cause a financial crisis, and no one will be left to sell." Keep in mind that "volatility is back," he says."

Interesting comment here from this strategist. In behavioral finance, one of the typical mistakes we humans make in investing decisions is the "recency effect". We tend to overweight more recent experience and discount the distant past. I can't help but wonder if after May-July 06 and Feb 07 the market has "trained" many to assume every quick 5% pullback is absolutely a dip to be bought before a march to new highs. It would be ironic if this particular instance turns out to be trap for all those making that assumption. Be careful.

ETFs vs. Mutual Funds: The Long and Short (Term) Of It

<i>Actually, no actively managed mututal fund has ever outperformeded its corresponding index over the long term,</i>

This is completely inaccurate. There are plenty of funds that have outperformed over the long-term. Sequoia, Longleaf, Legg Mason Value Trust, etc.