Click here to listen…
Introducing Your New Partner, Mr. Market
Let me tell you a story about two partners that went to work together every single day. The first partner, you could say, was the operating partner; let’s call him “Mr. Operator”. He toiled a full day, growing and managing his business in a very diligent manner. The second partner did not operate the company, but he was the guy with the money. He was the investor; let’s call him “Mr. Market”. Mr. Market would talk to his partner, Mr Operator, every day without fail, since the very first day of the business. Each day Mr. Market would offer to buy the business at a price he thought represented the future value of the company.
However, there was one caveat. Mr. Market suffered from manic depression, and like most manic depressives, he was elated for periods of time and hugely depressed for others. On the days he was feeling most positive and optimistic, he would offer a sky high price assuming the future prospects were unlimited. On the days he was depressed, he would offer a very low price, afraid that Mr. Operator would unload the company at too high a price.
This went on day after day after day. Even though Mr. Market was the money guy, Mr. Operator was a smart guy too. He really understood his business and had a good idea of what is was really worth. He never took Mr. Market’s offer price as an indication of the value of the company. He knew that one day he would sell to Mr. Market, but it would only be at a time when Mr. Market was in his overly optimistic, manic phase. You see, he knew what the business was worth, so he could choose the price at which to sell. He knew that Mr. Market’s price was based more on emotional factors than on facts.
All investors who buy and sell securities in the stock and bonds markets have Mr. Market as a partner too. As the operator of your investments, you may choose to buy-from or sell-to him at his stated price, always aware that the choice is yours. You see, it’s up to you to know the value of your business, never confusing the price that is offered with the real value of your investment. It may or may not be the true value, but it is up to you to know.
Since the beginning of 2009, Mr. Market has been quite manic. As expected, Mr. Market was feeling pretty good. A new President, a new congress, the promise of change lifted his spirits and his view of the future. This is a common occurrence at the beginning of most new years, and in true form he offered higher and higher prices for a few weeks—just a few weeks, because soon his mood began to darken once again. He started concentrating on the negative. Yes the economy was bad, and the media was sighting statistics that described it in detail, but Mr. Market acted confused, and couldn’t make up his mind from day to day. One day, he would push up the price for companies and the next day he would push them back down like a see-saw. Day in and day out he has been acting this way for the entire month. If news hits the screen about the fall of “New Housing Starts”, prices go way down. If another report surfaces about a rise in the number of houses sold, the market zooms higher.
If you are an active trader, you have to decide whether you are willing to trade with this manic depressive, not knowing what mood he will be in- on any given day. Or you can sit on the sidelines and wait for him to present an offer to you to buy something at a low, low price. If you do decide to buy from him at a low price, you can now wait for the return of Mr. Market’s overly optimistic periods. You have to know what your business is really worth and you can choose to sell to him on your own terms.
Right now, I choose to wait on the sidelines until Mr. Market gives me an offer I can’t refuse.
Looking at January
Concerning January’s performance, I will share with you some thoughts and insights from Sam Stovall, Chief Investment Strategist, Standard & Poor’s Equity Research:
The S&P 500 fell 6.4% month to date through January 29. This would be the second consecutive year in which the S&P 500 declined during the opening month of the year. Since 1929, there have been five other times that the “500” tripped up in two successive Januarys (1956-57, 1973-74, 1977-18, 1981-82 and 2002-03). In the remaining 11 months of the second year of these “double-dips,” the S&P 500 gained an average 3.0% and rose three of five times. But don’t get your hopes up too quickly. Twice the market fell in January three years in a row (1939-41 and 1968-70).
Why should we care if the S&P 500 rises or falls in January? Because of an old Wall Street adage, first observed by The Stock Trader’s Almanac that states: “As goes January, so goes the year.” A positive performance by the equity markets in January has typically led to a gain for the full year, while a negative performance in the first month usually signaled a decline for the entire year. Of course, past performance is no guarantee of future results.–Sam Stovall, Global Equity Strategy, January 29, 2009
What to do now.
What am I doing? I’m culling the herd, so to speak, getting rid of the weakest investments. I am buying bonds at 6+% and dabbling in the preferred stock and junk bond arena, getting yields of 11 and 15%. These investments are riskier, so consult your advisor before doing this on your own.
Stock wise, I’m still on the sidelines having ended my “phasing in’ strategy earlier in the month due to negative technical readings.
At this moment, there are no signs pointing to a rising stock market, which leads me to the conclusion that the next few quarters might be rough. However, many stocks remain at historic lows and any sign of a bottoming out of the economy will, in my opinion, send these stocks soaring once more. Patience will be needed and patience will be rewarded. In the words of a better philosopher: “Patience is bitter, but its fruit is sweet.”–Rousseau.
Click here to listen…
Introducing Your New Partner, Mr. Market
Let me tell you a story about two partners that went to work together every single day. The first partner, you could say, was the operating partner; let’s call him “Mr. Operator”. He toiled a full day, growing and managing his business in a very diligent manner. The second partner did not operate the company, but he was the guy with the money. He was the investor; let’s call him “Mr. Market”. Mr. Market would talk to his partner, Mr Operator, every day without fail, since the very first day of the business. Each day Mr. Market would offer to buy the business at a price he thought represented the future value of the company.
However, there was one caveat. Mr. Market suffered from manic depression, and like most manic depressives, he was elated for periods of time and hugely depressed for others. On the days he was feeling most positive and optimistic, he would offer a sky high price assuming the future prospects were unlimited. On the days he was depressed, he would offer a very low price, afraid that Mr. Operator would unload the company at too high a price.
This went on day after day after day. Even though Mr. Market was the money guy, Mr. Operator was a smart guy too. He really understood his business and had a good idea of what is was really worth. He never took Mr. Market’s offer price as an indication of the value of the company. He knew that one day he would sell to Mr. Market, but it would only be at a time when Mr. Market was in his overly optimistic, manic phase. You see, he knew what the business was worth, so he could choose the price at which to sell. He knew that Mr. Market’s price was based more on emotional factors than on facts.
All investors who buy and sell securities in the stock and bonds markets have Mr. Market as a partner too. As the operator of your investments, you may choose to buy-from or sell-to him at his stated price, always aware that the choice is yours. You see, it’s up to you to know the value of your business, never confusing the price that is offered with the real value of your investment. It may or may not be the true value, but it is up to you to know.
Since the beginning of 2009, Mr. Market has been quite manic. As expected, Mr. Market was feeling pretty good. A new President, a new congress, the promise of change lifted his spirits and his view of the future. This is a common occurrence at the beginning of most new years, and in true form he offered higher and higher prices for a few weeks—just a few weeks, because soon his mood began to darken once again. He started concentrating on the negative. Yes the economy was bad, and the media was sighting statistics that described it in detail, but Mr. Market acted confused, and couldn’t make up his mind from day to day. One day, he would push up the price for companies and the next day he would push them back down like a see-saw. Day in and day out he has been acting this way for the entire month. If news hits the screen about the fall of “New Housing Starts”, prices go way down. If another report surfaces about a rise in the number of houses sold, the market zooms higher.
If you are an active trader, you have to decide whether you are willing to trade with this manic depressive, not knowing what mood he will be in- on any given day. Or you can sit on the sidelines and wait for him to present an offer to you to buy something at a low, low price. If you do decide to buy from him at a low price, you can now wait for the return of Mr. Market’s overly optimistic periods. You have to know what your business is really worth and you can choose to sell to him on your own terms.
Right now, I choose to wait on the sidelines until Mr. Market gives me an offer I can’t refuse.
Looking at January
Concerning January’s performance, I will share with you some thoughts and insights from Sam Stovall, Chief Investment Strategist, Standard & Poor’s Equity Research:
The S&P 500 fell 6.4% month to date through January 29. This would be the second consecutive year in which the S&P 500 declined during the opening month of the year. Since 1929, there have been five other times that the “500” tripped up in two successive Januarys (1956-57, 1973-74, 1977-18, 1981-82 and 2002-03). In the remaining 11 months of the second year of these “double-dips,” the S&P 500 gained an average 3.0% and rose three of five times. But don’t get your hopes up too quickly. Twice the market fell in January three years in a row (1939-41 and 1968-70).
Why should we care if the S&P 500 rises or falls in January? Because of an old Wall Street adage, first observed by The Stock Trader’s Almanac that states: “As goes January, so goes the year.” A positive performance by the equity markets in January has typically led to a gain for the full year, while a negative performance in the first month usually signaled a decline for the entire year. Of course, past performance is no guarantee of future results.–Sam Stovall, Global Equity Strategy, January 29, 2009
What to do now.
What am I doing? I’m culling the herd, so to speak, getting rid of the weakest investments. I am buying bonds at 6+% and dabbling in the preferred stock and junk bond arena, getting yields of 11 and 15%. These investments are riskier, so consult your advisor before doing this on your own.
Stock wise, I’m still on the sidelines having ended my “phasing in’ strategy earlier in the month due to negative technical readings.
At this moment, there are no signs pointing to a rising stock market, which leads me to the conclusion that the next few quarters might be rough. However, many stocks remain at historic lows and any sign of a bottoming out of the economy will, in my opinion, send these stocks soaring once more. Patience will be needed and patience will be rewarded. In the words of a better philosopher: “Patience is bitter, but its fruit is sweet.”–Rousseau.
Posted in On The Money! Commentary | Tags: advisors, bear market, economy, finance, investing, investments, money, money management, stocks and bonds, Wall Street