Re: Countries on verge of default or close encounters
^ My stratey is not to pick the absolute low point to buy. I had some limited funds set aside - just for this occasion. We all were anticipating problems with debt ceiling, sovereign debt in Europe etc. So I have been dollar cost averaging down. While on Wednesday, the Market whipsawed me, on Thursday, S&P500 was down a full 4.7%!! Hence as pre-planned, bought some more index funds. Also, picked up some big pharmas and a retailer (juicy dividends) on Thursday at or near their 52 week lows. (My rule is they should have a rock solid balance sheet).
I have no idea where the market will go next week, or even next moneth to next 6 months. However, as the market goes lower, I will buy little at a time. Till the allocated funds are used up. Then I sit back and wait for the market to attain fair value.
As Buffett says, in the short term, the market is a casino, in the long term, it is a weighing machine.
As always, I will end with - this is not a recommendation to buy or sell, just explaining my strategy - which had been laid out in advance, and am in the middle of executing.
I also end with "Mr. Market knows best - and is to be always revered. Else he will bit you in the ...."
Europe is beginning to look interesting. If it drops another 20%, may buy a European index fund.
Re: Countries on verge of default or close encounters
Today's WSJ had an article by Jason Zweig re: US S&P500 valuation. Robert Schiller the Yale Prof has a P/E ratio defined, with earnings being inflation adjusted average earnings over last 10 years. This removes effect of artifically high or low earnings in any given year.
The Schiller P/E of the market is now 20.2. Its historical average is 19.5. So the market, per this metric, is fairly valued at best.
For some perspective, in March 2009, this ratio was 13.3, in 1982 it was 6.6 and around 8 in 1974 and 1932. So, if the roof caves in, things may get uglier, per this metric.
As an investor, I have no idea if it will get this ugly. The worst case secnario is for market to drop ~ 67% (if P/E drops to 6.6). If it attains March 09 valuations, markets could drop 35%. I am planning for the latter. Time will tell - as the cliche goes.
Re: Countries on verge of default or close encounters
Markets went crazy today (Monday Aug 8). Bought one health care stock near the day's low, and also put some more pre-determined funds in index fund.
Have planned two more indivudual stock buys and ~ 22 more index fund buys. By the end of this, if market drops 25-28% from this level, strategy would have worked. If it keeps dropping after all funds exhausted, I can look back and curse myself for being too early.
Re: Countries on verge of default or close encounters
Market jumped today - I think erased most of Mondays losses. So no regrets implementing buying on way down approach - so far.
No idea what it is going to do next day, next week or next month. Now will stop posting on this topic - just wanted to do this experiment to show buying little bit on way down cannot hurt. Buy low sell high is time tested over long haul.
Re: Countries on verge of default or close encounters
^ buying opportunities emerge when markets go down, one can get lucky if market makes a short u-turn upwards. However when markets were crashing in 2008 there were no such short u-turns and it was almost impossible to find out when is good time to enter.
Re: Countries on verge of default or close encounters
^ Captain - I actually would have preferred the market went down further - had planned for additional 25-30 pctdrop. So while I welcome the short tem u-turn, I would welcome a further decline so I can deploy rest of the cash. The market valuation is fair value to slightly undervalued.
Whereas, for The 2007 Oct - 09 drop - market was at 1576 s and P 500. Overvalued. Valuation matters. In fact, if you just bought fixed amt each month from 2007 oct peak thru March 09, that is bought all the way down, you did all right.
as a long term investor, putting little fixed amt periodically as market drops should work. Especially when the mood is as dark as it is now. When no one believes, that is the time to step up and buy. IMO
Re: Countries on verge of default or close encounters
^ I agree, also I think there will be another u-turn (back to downward) for little longer before market can start heading up again. European markets already heading south on hint of US markets going negative.
Re: Countries on verge of default or close encounters
^ yes - the markets were down today. Made no moves, since they closed above Monday close (when I had bought 1 stock and mutual fund shares). Will wait for a while - if market goes up from here - no problems. If it stays flat no problems. if it goes down below Monday close, will buy in small pre-determined increments for each percent drop.
Re: Countries on verge of default or close encounters
Market up ~ 4.5 pct. 7 consecutive days of alternate up down. First time DOW has moved > 400 pts 4 days in a row. No idea where it will go. When it is down, they bring up Europe. When it is up they bring up companies have cash, undervalued, joblessness stabilizing etc.
The Egan Jones rating agency which we talked about recently, ahs now become very popular. Yesterday WSJ had an article on him. He has been now making the rounds in CNBC also.
Re: Countries on verge of default or close encounters
Captain - I was thinking - you did a nice job highlighting the European sovereign debr crisis as far back as July 8.
Market down 4.3%. So as stated earlier, put in fixed amt in index fund. also bought a healthcare stock at its 52 week low. # of bullets left decreasing - but have a few more to see market all the way down to 900.
We will see how this strategy plays out - a real-time laboratory experiment.
Re: Countries on verge of default or close encounters
^ I agree, also I think there will be another u-turn (back to downward) for little longer before market can start heading up again. European markets already heading south on hint of US markets going negative.
Nice call - after your post, the market did head back down, all the way to the previous low. And today it was up 3.5%. This kind of volatilty on either side (up or down) is becoming all too common.
Re: Countries on verge of default or close encounters
Market closed up 2.85% today. Experiment so far working well. Putting a little bit at a time as market goes down from fair value levels to cheaper levels should pay off - did not expect such a quick turnaround - and did not want market to turn around so quickly either.
But buying lower appears to work - which is quite obvious to someone not caught up in the emotions of a volatile market.
It is also clear that what appears obvious - that the direction of the market would be down because of sovereign debt crisis etc - need not be the outcome. Too many forces drive the market on any given day. Use some hostoric basis (such as P/10-yr average earnings) to see if market is reasonably valued. And if there is extreme fear, move little at a time. Keep it simple.
Re: Countries on verge of default or close encounters
Since the last post, market went up to around ~ 1210, then reversed course all the way to 1099. Put little bit in from 1140 all the way to 1099. Now market has made a violent move up. As alway,s it is impossible to predict short term moves. But buying a bit when it is down is not a bad strategy, as this experiment has shown.
As always, I close with paying proper respect to Mr. Market, who knows best.
Re: Countries on verge of default or close encounters
The market will probably stay violent until the signs of recession are clearly in or out, other reason to stay violent is the european countries' debt... I guess we are in for a rough ride for may be another year.
Re: Countries on verge of default or close encounters
Experiment proceeding well (so far). Have not done any buying since market has moved to ~ 1240. Of course, there is always that remorse after mkt has moved up 13% if I should have placed more in the market at 1099. But that is just 20/20 hindsight. This strategy has shown the obvious - when the mkt has attained what is a common sense fair value by any metric, as there is fear (some rational some irrational) buy a little at a time. Do not be greedy and buy all at once, expecially when some of the risks obviously are real. But do not hide under the bed either. Be bold when others are fearful.
Re: Countries on verge of default or close encounters
^ true that.... I think 'time to sell' is approaching if not already there, market is close to 12000 but then there are hints of another downgrade of US credit rating so market may kiss 12000 briefly then head south again, be careful with what you are holding :)
Re: Countries on verge of default or close encounters
^ Suggestion well taken, Captain!
I hold US Index funds - Total Market and S&P 500 Index. The US rating downgrade may affect financial stocks more I think - but their weightage has decreased as a percent of total market capitalization of all US stocks.
I try not to get in and out of markets. This strategy was to deploy some excess cash when opportunity presented itself. Now I just sit back and go along for the ride. Unless market reaches nosebleed levels, which I define as SNP500 reaching say 1450 in 6 months or 1550 in 1 year, I plan to just hold on. The idea was to accumulate assets for the long term at reasonable to cheap prices.
Re: Countries on verge of default or close encounters
The market was up 3.5 percent today. It is now up 17% from the recent low of 1099 (S&P500). This exercise shows that one should not try to predict short term moves. When the market turns in either direction, it can at times do so very violently. Have a game plan beforehand, and do not change it based on emotion. If prices drop, remember that is good if you are a buyer. As my boss used to say, Keep it Simple.