In Search of the Perfect Investment

Yesterday, the market opened down — way down. My friends are smart. Eons ago they had placed ultra-low limit buy orders. Yesterday morning they all got filled. Within several hours, the market bounced and my friends were geniuses. All their early-morning buys were up.

The ultra-geniuses promptly sold their lucky buys for a handsome 10% to 20% profit. (They figured that the bounce was caused by the ultra-geniuses limit buy orders being filled.  And once filled, stock prices would promptly turn down. Which they did.)

The others kept their cheap buys. By the end of yesterday’s roller coaster, many (not all) were facing losses on their cheap, lucky buys.

Here’s what the markets have done over the last two days — Friday and yesterday, Monday.

A couple of pictures tell a gruesome, hair-raising story:

My smartest man today is called J.P.  He bought early and sold around lunchtime for handsome 20% profits. I asked J.P. for his “secrets.” His reply:

Hi Harry,

I follow a small number of companies with sound fundamentals, a good track record, and a strategic direction I like in a very small number of industries that I understand and have the ability to stay abreast of. That rules out most industries.  In the very few industries that I follow, that also rules out most companies in those industries.

I use limit orders to buy at a price I want to buy at and to sell at a price I want to sell.  My limit order for a buy is around 20% below a stock’s recent high.

My limit order for a purchase usually sits idle for a very long time without executing. More often than not it expires without executing and I have to resubmit it.

I also know that if a stock appreciates 5% to 10% in a few weeks or a few months it can’t keep doing so week after week or month after month, so I take my modest profit and get ready for the next inevitable pullback whenever that may be.

 Today the market handed me a gift on a silver platter.  It was like the hottest, sexiest, horniest woman in the world showing up naked at my door, saying she wanted to have sex with me. When retail investors panic, it is a Godsend. I wish it happened more often — say, maybe once a month.

 I had gone mostly to cash six weeks ago, in anticipation of what happened today.

 I record CNBC’s “Fast Money” everyday and “Options Action” on Friday and watch them at night when I get home from work. Those are the only stock market-related shows I watch. CNBC’s daytime shows are utter, unmitigated crap, but Fast Money and Options Action are great. The panelists’ perspectives are informed and thoughtful, and they have skin in the game.

I read the press releases, 10-Qs, earnings calls transcripts, and other materials on the IR sites of the small number of companies I follow.

 I also read the WSJ, FT, NYTimes, LA Times, and SF Chronicle daily, plus the local rag.

My friend J.P.  does very well in the stockmarket — far better than I do. Re-read what he wrote above. It’s very thoughtful.

Personally, I did very little today. I had only a few minutes with my laptop before we started moving on our Big West Coast Trip. By the end of the day my Fidelity account had now officially lost all its gains of the past couple of years. My Vanguard index funds (which are held in a Vanguard account) all dropped a whopping 4% Monday.

I am heavily in cash, But clearly not sufficiently. I need to raise more cash.

I believe markets will continue to fall. Go back to yesterday’s blog for why. Click here.

Stop the presses: There is good news. Last night the New York Times posted this story:

Shanghai Stocks Continue to Dive as Global Markets Elsewhere Stabilize

The Latest

■ In China, the benchmark Shanghai composite index opened 6.4 percent lower.

■ Most other Asian markets stabilized or rallied modestly, swinging from losses to gains. Japanese stocks opened sharply lower but recovered.

■ The international and American oil benchmarks rebounded tentatively, despite concerns about oversupply.

■ Stock markets in the United States traded in a volatile session on Monday, with the Standard & Poor’s 500-stock index closing down nearly 4 percent.

In-Depth

After a three-day rout that erased nearly $3 trillion in value from stocks globally, markets on Tuesday showed signs that selling pressures were easing.

Volatility continued to dominate early trading in Asia, but many regional markets swung from losses to gains for the first time in days. Stocks in Japan opened sharply lower but had recovered by late morning, while shares in Australia, Hong Kong, Singapore and South Korea were staging a modest rally.

Across Asia, the free fall of the past few days appeared to have ended – except in China, where Shanghai stocks opened 6.4 percent lower after Monday’s 8.5 percent plunge.

You can read the rest of the story here.

Harry Newton, who spent much of yesterday in Northern California’s Lassen Volcanic National Park — one of the most beautiful national parks Susan and I have ever seen. It’s full of breathtaking valleys and stunning volcanic mountains. Susan and I most liked the yellow meadows, graced by slow flowing streams and surrounded by beautiful high mountains.

Sample meadow, courtesy my trusty Canon G16 late yesterday afternoon:

Tomorrow, we’re off to Truckee, which apparently is the nice part of Lake Tahoe. We’ll be staying there a couple of days before we’re off to Yosemite.

Final thought: There are things more important than a falling stockmarket. They include your health, your family and beautiful places still to visit.