Al Capital

Planned, Cautious Buying Amidst This Panicked Selling

That was a thoughtful post. The element that was missing however is the plan under worst case scenarios, or what I would call "survive to fight another day" scenario. Although I have suggested all cash positions since February, I recognize that "traders" are looking for "deals".

Look, it might be unbelievable, but the market reaction to the current crisis is painfully obvious. First it will discount all growth since the housing bubble, basically assigning 5-10 cents on the dollar to mortgage backed securities of that vintage and bringing the Dow and S&P down to 2002 levels. From that point it could get even worse, much worse, so in making choices in this market, realize that the risks are enormous. The VIX alone documents an extraordinary risk level.

That brings me back to your point about "a plan". That plan should also account for the risk and costs of being wrong, meaning that if you are just hoping for a stabilization, or hoping for a bounce, then the plan should be to avoid risk.

Regarding the comment about "buy low and sell high", that works great in retrospect, but today's price might seem low now, but in fact turn out to be very high in a month from now. Don't invest using aphorisms, as you know "a fool and his money are quickly parted".