Thursday, October 24, 2013

Should you pull that trigger?

Now tell the truth, at (at least) one point over the past three weeks you were thinking about selling your stocks, weren't you? I received a couple (literally just a couple) of inquiries from clients. The gist, "if the country defaults on its debt, all hell is going to break loose; shouldn't we get out of the market now, just in case?" My reply, "well, you know, I didn't call you, so obviously jumping out here is not my advice. And, besides, as I have stressed ad nauseam in interviews and on the blog, in my view there's absolutely zero chance the U.S. is defaulting on its debt. Not that the market isn't about to deliver a little (or a lot of) pain---that, I can't predict---it's just that it won't be for the reason you anticipate."

And here you are today, saying "whew! So glad I didn't pull that trigger!" Oh, but hey, you could have been right, stocks could have taken a monster hit, although, again, not for the reason you feared. In fact, had you done so back in the fall of 2011---when our fearful "leaders" were then playing faux debt-ceiling roulette---you would have averted a 16% hit (oddly, traders at the time seemed to think the politically impossible possible). And if you had bought back near the bottom, then held on, you'd be so loving that number you check daily on your custodian's website. Or would you? Think about it, if you struck that ever-elusive market-timing gold during the last debt ceiling battle, don't you think you might have tried it again this go round? My pair of nervous (or opportunistic) clients contacted me when the brinkmanship had reached its zenith (7 or 8 days in), when the Dow was trading around 14,700. Had that been your exit point, you'd have, as of today, blown a nearly 6% hole in this year's performance---assuming, that is, you bought back in today.

All that said, now that the Dow is flirting with its all-time high (the S&P 500 is already there), you might want to go ahead and pull that trigger tomorrow. Maybe the balance of Q3 earnings come in terribly below expectations, maybe next month's jobs number comes in way low, maybe the Fed surprisingly cuts QE before the end of the year, maybe the Middle East heats back up, or etc; any of which (especially the etc.) could spark a panicky sell-off. Although, if you do, and earnings come in better than expected, and next month's jobs number comes in above 250k, or next month's jobs number comes in way low but sparks a rally since, without substantial job growth, the Fed will keep the presses pumping, or those grossly under-performing hedge fund managers capitulate and aggressively buy stocks in hopes of catching up by the year's end, or those who've ridden the bulging bond market decide it's time to rotate to stocks, or etc; you'll sorely wish you hadn't.

Never forget folks, as I suggested back in July of last year (see below), the variables that ultimately determine economic and market direction are too numerous for the human brain to even assemble, let alone forecast. In other words, never try to time the market.

BEWARE THE KING(S), July 31, 2012

The “King of Bonds”, Pimco’s Bill Gross, has given the world a priceless gift. He’s accomplished something other mortals have aspired to, but forever at the expense of their credibility. Thanks to Mr. Gross we finally know precisely what to count on, financially speaking, for the remainder of life as we know it on planet Earth. The guessing’s over. I suppose I should re-think my career path.

Apparently the past century of stock market gains and wealth accumulation was a “freak” anomaly, one to never be repeated. His incomparable (out of 7 billion) brain, has put all the pieces together. He has solved the great riddle; he has determined what he’s dubbed the “new normal”: That is, sub historical-average economic and asset-value growth, in perpetuity.

In essence; he knows precisely how all the world’s individuals will transact their affairs for eons to come.


He foresees advances in consumer technology,





and living standards in general.

old city

future city

He can predict the outcomes of political power grabs,

political cartoon

weather patterns,

sunny day


and natural disasters.


And has gauged the precise impact of each on the global economy.

He has indeed solved nature’s great mysteries.


What forever baffles me is the correlation between the capacity for thinking and the lack thereof for reason. The sad thing (seemingly, but surely not in every case) being; the larger the capacity of the brain (or perhaps the academic achievement, or perhaps the professional accomplishment), the larger the ego – the larger the ego, the lesser the humility – the lesser the humility, the greater the God complex – the greater the God complex, the greater the following – the greater the following, the greater the damage when a black swan (a purely random event) falls from the sky.


No comments:

Post a Comment