The best days for algos are days like yesterday. Stock prices start to fall — there are a million reasons. You can hear them all on bubblevision. No one knows really why… And the algos, seeing the sell orders, pile in and this is what happens. All these charts show yesterday:<\/p>\n
![\"\"](\"https:\/\/www.technologyinvestor.com\/wp-content\/uploads\/2020\/09\/spx-todday.j.jpg\")
<\/p>\n
![\"\"](\"https:\/\/www.technologyinvestor.com\/wp-content\/uploads\/2020\/09\/MSFT-Today.gif\")
<\/p>\n
![\"\"](\"https:\/\/www.technologyinvestor.com\/wp-content\/uploads\/2020\/09\/apple-today.gif\")
<\/p>\n
![\"\"](\"https:\/\/www.technologyinvestor.com\/wp-content\/uploads\/2020\/09\/ixic-today2.gif\")
<\/p>\n
Does yesterday’s action (and probably today’s) mean anything for our holdings? Clearly, all our old lessons still prevail:<\/p>\n
+ Don’t panic. Markets go up and down. You always lose money when you panic into selling because there’s a momentary blip.<\/p>\n
+ Keep assessing your stocks. Do you own solid growing companies with a long-term future? If one or two look “iffy” it’s ok to sell them. Personally, I’m happy with the stocks in our portfolio.<\/p>\n
+ It’s perfectly reasonable to have 5% of your portfolio in specs — like some of the vaccine, cannabis or gold mining stocks. Personally I have no idea what they might be.<\/p>\n
This morning, as I was writing this blog, I received Joel Ross’s latest Ross Rant, <\/em>which begins:<\/p>\n Almost every day I had heard my friends and talking heads on TV say the market is over-priced and over concentrated, and the end is near. And so the pullback happened. There was no question the prices of some stocks had gotten ahead of themselves, driven by the Robinhood day traders and the momentum players. So now the drop is possibly over after one day. As you know from my prior Rants, I now do not think long term those favored stocks have peaked. Yes the multiples are very high, but for the tech companies and retailers like Walmart and Home Depot, they are still not over valued based on what I believe is the future earning potential. I take a longer, multi-year view, not the next 6 months, or even next year. I have held some stocks like HD for ten years. I have made over 900% on my investment in HD. Since March of 2019 when I moved all of my accounts to Schwab and self-managed, I have earned a 26.4% annualized return following this strategy, as measured by Schwab for my account using a daily time weighted rate of return. They also rate my portfolio as high risk because it is 100% equity. To me the risk reward is easily worth it. In my view, long term gain is what investing is all about. Not a short term hit. Taking this long view has paid off for me extremely well. You just have to select the companies that have strong management, strong brands and products, and a solid balance sheet, and then sit back, and not panic every time there is a hiccup like in March, or this week. My strategy is not for many who fear the risk, which I consider not to be a risk if you have a long term view and know when to get out, as I did in May 2007 for two years. I will get out again if Biden wins and the Dems take the Senate, as I believe they will destroy the economy. Better to pay taxes and be liquid than lose 30% or 40% of principal, and still owe some taxes because your cost basis was low. And if the Dems get control, your cap gains taxes will be at ordinary rates. Many people I know sold in March to book losses and then reinvested. Too late now. If you have a wealth manager, insist on what you think is right if you have a view different than they do. Investing is like medicine. If you are not your own advocate, you can get into trouble. Some wealth managers do very well, but like in every profession, there are some who are not good. Reality is the Fed is still supporting the economy, there are still trillions on the side lines waiting to invest, and the economy is improving. The correction we just saw was simply due to values getting out of control and most traders believing the market would decline, so they and the algos sold once it started down. Keep in mind the algos are 70% of the market trading, and as soon as there is bad news, like from Fauci about vaccines, they instantly react, and then it cascades. Plus it is right before the long weekend.<\/p>\n I will not sell my stocks if Biden is elected. As I have written before, historically stockmarkets actually do better under Democratic regimes.<\/p>\n I do agree with Ross that taking a longer, multi-year view, not the next 6 months, or even next year, makes the most sense.<\/p>\n My friend Matt Wood, the best insurance broker in the world, has a wonderful job and a wonderful investment strategy: It’s called dollar cost averaging. He has assigned $x to invest each month in the market. And every month, rain, hail or shine, he dumps his money into half a dozen index funds. He’d be better off with individual stocks. But he also has a successful business to run. (He’s based in Chatham, NY in case you need\u00a0 some insurance.) Tell your kids about dollar cost averaging.<\/p>\n A stunning book<\/strong><\/span><\/p>\n I’m engrossed in this book.<\/p>\n Nice, feel-good story about the Brazilian fisherman and the penguin<\/strong><\/span><\/p>\n![\"\"](\"https:\/\/www.technologyinvestor.com\/wp-content\/uploads\/2020\/09\/caste.jpg\")
\nHighly recommended. Excellent weekend reading. It’s #2 on Amazon. I won’t summarize it. But I can’t put it down. Read the book. Click here.<\/strong><\/a><\/p>\n