“Don’t fight the Fed.”
“The trend is your friend.”
“Bulls and bears make money. Pigs get slaughtered.”
I’m sure you can think of many other of these market aphorisms. I’ve got another:
“Market gay, stay away.”
This market is not your typical bear market. It’s worse. I made the recent mistake of trying to bottom fish last week with part of my equity allocation, and got spanked for it. Fortunately, it was with a fraction of my money.
It seems that dip buyers are now chomping at the bit to buy stocks that are at “bargain prices”, due to some scheduled “massive rally” that is apparently going to happen any minute now. This is a mistake in thinking.
Hope is not a strategy.
Warren Buffett isn’t always right, either. Neither is T Boone Pickens, Bill Miller, Jim Rogers, Aubrey McClendon (an insider), and a host of other investors. Witness the recent buys by investors stepping in to scoop up shares on the cheap only to see value evaporation.
The typical asshat dip buyer compares the current price to recent prices and if the stock price is now much lower, he/she concludes that the stock is more attractive today than it was recently when it fetched a higher price. This simple evaluation is a nice way to buy stocks with developing problems, not necessarily a way to bank coin.
As Clay Allen pointed out in a recent Market Dynamics newsletter, “A stock is not a consumer good that has an intrinsic value based on its ability to satisfy a need or serve a useful purpose. Consumers often shop for bargain prices among consumer goods and this behavior is often exploited by merchants through the use of loss leader merchandise and the promotion of sales. A stock is an intangible asset that primarily produces value for the buyer when it rises in price. It is the increase in price that the investor desires. It seems that there is confusion between the behaviors of a consumer looking for bargains and the behavior of an investor seeking a bargain price for a stock.”
In other words, the mindset that leads to being a good consumer does not necessarily lead to being a good investor or trader.
There is no need to be buying stocks here. I’d rather hide in my cave for now.
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