In Search of the Perfect Investment

When stocks fall they trigger a search for “Predictors,” like the 200-day moving average, which the S&P has now crossed.

MarketWatch says

Dating back to 1933, the S&P has traded above the 200-day moving average 68% of the time. During those periods, it has risen by an annual rate of 11.3%, according to Eddy Elfenbein of the Crossing Wall Street blog . The 32% of the time spent below that number has resulted in a yearly loss of 1.1%.

Yesterday some observers noted that the VIX spiked. When it spikes, the theory is the market goes down big-time.  I put two charts together:

There definitely is a relationship. Does the VIX spike before, or during a sell-off? That’s hard to figure. The good news is that the VIX hasn’t spiked as much as it did in late October 2008.

There remain the usual concerns:

 + Slowing Europe, especially Germany. France got downgraded last week.

+ Slowing Asia, including Japan and maybe China, though the latest news out of China seems positive.

+ Irrational Russia, willing to shoot itself in the foot.

+ The middle east — Syria, Iraq, and ISIS.

+ Lower oil prices, and whatever that means for slowing industries that use oil and the industries that make it.

+ Ebola and the increasing panic — largely because we don’t seem to be able to deal with it.

+ Slowing US business, especially the big part that does business with Europe.

So what should you do?

Several noted people have sold everything and gone to cash. Dennis Gartman told CNBC yesterday he’s now over 80% in cash and short-term securities. That seems extreme, since trying to time the market has never worked.

Another theory is there are three places to “invest” — stocks, bonds and cash.

Bonds are paying increasingly less (nice expression?). Thirty year treasury bonds are now paying less than 3%. Presently 2.95%. Lowest in over five years. Ten year treasures are paying 2.21%, also very low.

One theory I heard today: when bonds pay so little, investors have to pile into stocks.

The best strategy seems to be to sell stocks that are not working — have fallen more than 10% — because they’re likely to fall even further. And be ready to buy stocks that appear that might get suddenly cheap. Good idea: Place some low limit buy orders.

The averages are of course averages. They mask all ills. I found this list on CNBC’s web site of stocks that have recently fallen more than 40%. Note the list includes many “hot” stocks that the network (especially Cramer) has pushed in recent months:

 

The moral of this chart is simple: Take your profits quickly and play with the bank’s money. Hot stocks get hot and cold very quickly, especially in squirrelly markets like what we have. An example, which I recently sold:

Last night I played tennis with Matt Wood, a brilliant 26 year-old tennis player. He doesn’t care about the market’s gyrations. He does dollar cost averaging. Every month he takes a fix amount of money (his savings) and buys more of several favorite index funds. As he explains, “If the market is down, I get more. If the market is up, I get less.” On average it works nicely.

And it’s a great discipline — if you’re 26.

Not if you’re 72, you don’t have a job and your liquid investments are in stocks, bonds and cash. And every day it does down, you feel poorer. Unlike Matt, who relishes the bargains.

So my wealth declines. But my tennis improves. It helps to hit with great players like Matt.

And there are wonderful things to be happy for.  The  family is healthy and Sophie can still pull funny faces. This is her with her gorgeous mother, my daughter, Claire:

Amazing deals on SSDs. A solid state hard drive is the fastest way to speed up your computer.  SSDs have come down dramatically in price. Example:

This one is from Rakuten.com. Click here. But every online retailer, including Amazon has cheap ones, including much bigger sizes.

When to say NO to your doctor. When it’s time to stop takng pre-condition pills and hurting yourself with the side affects. Excellent, long article from Men’s Journal. Click
here.

Harry Newton who notes recent market have tended to be up in the morning and collapse in the afternoon. If you’re selling something, do it in the morning.