Thursday, July 26th, 2012
(h/t: Barry Ritholtz)
Thursday, July 26th, 2012
Friday, June 1st, 2012
I did a rather lengthy interview with the delightful Wally Forbes last week. It went up on the Forbes site yesterday afternoon, and is worth a read:
Here’s an excerpt
“I may have mentioned this last time we spoke. In a secular bear market, like 1966-1982 bear or the secular bear market that began in March of 2000, our primary goal is to manage risk and protect capital.
It’s kind of funny that after the 2008 collapse everybody has been mouthing those words. But, we’ve been saying that for ten years now. This is a secular bear market and you have to be very much aware of lots of volatility – strong rallies up, strong collapses down. If history is your guide, than you should expect to see five major swings from the bottom to the top and back before this whole mess is over.
Right now we’re probably on the third leg. You had the initial crash in 2000-02/03, strong rally, big crash in 2008-09, big rally and if history holds true we should see one more major correction before the secular bear market is over.
History also tells us that, typically speaking, the middle collapse is the worst of all. So the 1973-74 lows, or in our case the March 2009 low is probably the worst of the collapse. Again, understanding the broader historical patterns doesn’t change what we do day to day, but it very much colors our longer term thinking. It makes us say, “Hey, there’s probably something out there in the latter half of 2012, maybe 2013. That’s going to be the next great buying interval. That will be the next time we go 90-100% long equities.”
“Here’s the thing to keep in mind, and investors forget about this: There are keys to long-term performance, three major issues that you always have to recognize. One, you can’t have giant losses. Two, you have to keep the fee structure as modest as possible. Three, very often the less you do, the better off you are. The last one is really hard, because everybody comes into the office everyday and there’s a temptation to do something constantly. The expression, “Don’t just do something. Sit there,” really is true.”
Buy ConocoPhillips, Keep An Eye On Walmart And EMC
Barry Ritholtz, CEO and Director of Equity Research, Fusion IQ
Forbes 5/31/2012 @ 12:00PM
Tags: Barry Ritholtz, Bottom To The Top, Collapse, Collapses, Excerpt, Fee Structure, Forbes, Interval, Last Time, Lengthy Interview, Lows, Rallies, Rally, Secular Bear Market, Swings, Term Performance, Third Leg, Volatility, Wally, Yesterday Afternoon
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Friday, May 25th, 2012
With U.S. home values off 35% from peak to tough, about 25% of those homeowners who have mortgages are now underwater — their mortgages are greater than the value of their homes.
Zillow’s interactive map revelas what percentage of homes in your county or ZIP code are in negative equity, based on Q1 2012 data.
The United States of Atlantis
click for full interactive map
(h/t: Barry Ritholtz)
Monday, February 27th, 2012
Nice list from Jeremy Grantham, via Marketwatch:
1. Believe in history
“All bubbles break; all investment frenzies pass. The market is gloriously inefficient and wanders far from fair price, but eventually, after breaking your heart and your patience … it will go back to fair value. Your task is to survive until that happens.”
2. ‘Neither a lender nor a borrower be’
“Leverage reduces the investor’s critical asset: patience. It encourages financial aggressiveness, recklessness and greed.”
3. Don’t put all of your treasure in one boat
“The more investments you have and the more different they are, the more likely you are to survive those critical periods when your big bets move against you.”
4. Be patient and focus on the long term
“Wait for the good cards this will be your margin of safety.”
5. Recognize your advantages over the professionals
“The individual is far better positioned to wait patiently for the right pitch while paying no regard to what others are doing.”
6. Try to contain natural optimism
“Optimism is a lousy investment strategy”
7. On rare occasions, try hard to be brave
“If the numbers tell you it’s a real outlier of a mispriced market, grit your teeth and go for it.”
8. Resist the crowd; cherish numbers only
“Ignore especially the short-term news. The ebb and flow of economic and political news is irrelevant. Do your own simple measurements of value or find a reliable source.”
9. In the end it’s quite simple. really
“[GMO] estimates are not about nuances or Ph.D.s. They are about ignoring the crowd, working out simple ratios and being patient.”
10. ‘This above all: To thine own self be true’
“It is utterly imperative that you know your limitations as well as your strengths and weaknesses. You must know your pain and patience thresholds accurately and not play over your head. If you cannot resist temptation, you absolutely must not manage your own money.”
(H/t: Barry Ritholtz, The Big Picture)
Tags: Aggressiveness, Barry Ritholtz, Critical Periods, Ebb And Flow, Grit, Investment Lessons, Investment Strategy, Jeremy Grantham, Lousy Investment, Margin Of Safety, Marketwatch, Nuances, Optimism, Outlier, Political News, Rare Occasions, Recklessness, Strengths And Weaknesses, Term News, Thresholds
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Wednesday, January 4th, 2012
As we approach the first trading day of 2012, it will be time well spent to review Arthur Huprich’s list of investment rules. Art is Senior Vice President and Senior Market Technician of Raymond James Equity Research. The list comes courtesy of Barry Ritholtz, writer of The Big Picture blog.
- Commandment #1: “Thou Shall Not Trade Against the Trend.”
- Portfolios heavy with underperforming stocks rarely outperform the stock market!
- There is nothing new on Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again, mostly due to human nature.
- Sell when you can, not when you have to.
- Bulls make money, bears make money, and “pigs” get slaughtered.
- We can’t control the stock market. The very best we can do is to try to understand what the stock market is trying to tell us.
- Understanding mass psychology is just as important as understanding fundamentals and economics.
- Learn to take losses quickly, don’t expect to be right all the time, and learn from your mistakes.
- Don’t think you can consistently buy at the bottom or sell at the top. This can rarely be consistently done.
- When trading, remain objective. Don’t have a preconceived idea or prejudice. Said another way, “the great names in Trading all have the same trait: An ability to shift on a dime when the shifting time comes.”
- Any dead fish can go with the flow. Yet, it takes a strong fish to swim against the flow. In other words, what seems “hard” at the time is usually, over time, right.
- Even the best looking chart can fall apart for no apparent reason. Thus, never fall in love with a position but instead remain vigilant in managing risk and expectations. Use volume as a confirming guidepost.
- When trading, if a stock doesn’t perform as expected within a short time period, either close it out or tighten your stop-loss point.
- As long as a stock is acting right and the market is “in-gear,” don’t be in a hurry to take a profit on the whole positions. Scale out instead.
- Never let a profitable trade turn into a loss, and never let an initial trading position turn into a long-term one because it is at a loss.
- Don’t buy a stock simply because it has had a big decline from its high and is now a “better value;” wait for the market to recognize “value” first.
- Don’t average trading losses, meaning don’t put “good” money after “bad.” Adding to a losing position will lead to ruin. Ask the Nobel Laureates of Long-Term Capital Management.
- Human emotion is a big enemy of the average investor and trader. Be patient and unemotional. There are periods where traders don’t need to trade.
- Wishful thinking can be detrimental to your financial wealth.
- Don’t make investment or trading decisions based on tips. Tips are something you leave for good service.
- Where there is smoke, there is fire, or there is never just one cockroach: In other words, bad news is usually not a one-time event, more usually follows.
- Realize that a loss in the stock market is part of the investment process. The key is not letting it turn into a big one as this could devastate a portfolio.
- Said another way, “It’s not the ones that you sell that keep going up that matter. It’s the one that you don’t sell that keeps going down that does.”
The table below depicts the percentage gain necessary to get back even, after a certain percentage loss.
- Your odds of success improve when you buy stocks when the technical pattern confirms the fundamental opinion.
- As many participants have come to realize from 1999 to 2010, during which the S&P 500 has made no upside progress, you can lose money even in the “best companies” if your timing is wrong. Yet, if the technical pattern dictates, you can make money on a short-term basis even in stocks that have a “mixed” fundamental opinion.
- To the best of your ability, try to keep your priorities in line. Don’t let the “greed factor” that Wall Street can generate outweigh other just as important areas of your life. Balance the physical, mental, spiritual, relational, and financial needs of life.
- Technical analysis is a windsock, not a crystal ball. It is a skill that improves with experience and study. Always be a student, there is always someone smarter than you!
Source: Barry Ritholtz, The Big Picture, January 1, 2010.
Tags: Apparent Reason, Axioms, Barry Ritholtz, Big Picture, Dead Fish, Equity Research, Guidepost, Human Nature, Investment Rules, Managing Risk, Market Technician, Mass Psychology, Pigs, Preconceived Idea, Raymond James, Senior Vice President, Short Time, Stock Market, Stop Loss, Underperforming Stocks
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Wednesday, December 14th, 2011
As we await the first Fed meeting in a while that no major policy easing or language change should occur, we bring one of FMMF’s favorite grumpy eccentric uncles – Howard Davidowitz. At this point, some of what he is saying is purely for entertainment purposes although there is some underlying reality in much of it. For those who don’t know, Davidowitz plys his trade as a retail analyst so maybe you will take more from the first video than the second, although both provide ear candy. ;) Warning – he is a tad partisan. :)
Howard Davidowitz: Consumers In TERRIBLE Shape and “It’s Going to Get Worse”
6 minute video – email readers will need to come to site to view
Weak data on November retail sales and an earnings miss from Best Buy on Tuesday poured ice-cold water on the whole “strong holiday shopping season” meme.All the upbeat commentary about Black Friday, Cyber Monday and the like was always specious, according to Howard Davidowitz, CEO of Davidowitz and Associates. Like Barry Ritholtz, Davidowitz says Black Friday data, particularly, can’t be trusted and is annually hyped by the retail industry to encourage consumers to get out and spend. In his own inimitable style, Davidowitz explains why the consumer is in “terrible shape” and why “it’s going to get worse,” citing the following:
- Crushing Debt Load: Consumer debt is 117% of disposable income.
- Help Not Wanted: Even November’s “strong” report included more people dropping out of the labor pool (315,000) vs. those who found work (278,000), according to the Labor Department’s household survey.
- Reverse Wealth Effect: Household net worth fell 4% in the third quarter, a drop of $2.4 trillion, according to the Fed. That’s the biggest drop since 2008 and would be hard to overcome even if wages were rising sharply, which they’re most certainly not.
- Housing Bust Rolls On: Residential housing remains depressed, which is putting tremendous pressure on Americans’ net worth and sense of financial confidence. Davidowitz, among others, sees more downside for housing prices and another increase in foreclosures in 2012.
Longtime viewers will note “it’s going to get worse” is a familiar refrain for Davidowitz, going back to at least 2009.
In the accompanying video, I asked what it would take for him to feel like things are getting better. As he’s wont to do with most subjects, Davidowitz answered that question with a stinging critique of President Obama. Barring a Supreme Court ruling that Obamacare is unconstitutional and/or victory in November by any “sensible” Republican — Davidowitz thinks both Mitt Romney and Newt Gingrich qualify – there isn’t much about 2012 he’s looking forward to, as you’ll see in the accompanying video.
Ok this one below might have some more of the ‘hyperbole’ angle to it ;)
HOWARD DAVIDOWITZ: Ben Bernanke Will Go Down In History As The Fed Chairman Who Destroyed The Country
4 minute video – email readers will need to come to site to view
Ben Bernanke, says Davidowitz, will forever be known as the Fed Chairman who destroyed the dollar, bailed out the banks, and perpetuated a monetary Ponzi scheme that will ultimately end in collapse.But wait. Didn’t Ben Bernanke save the country from a second Great Depression?
Absolutely not, says Davidowitz.Far from saving the country, Bernanke and his fellow White House confederates President Obama and Treasury Secretary Tim Geithner did everything they could to avoid fixing the problem. They bailed out the banks, and as a result, the banks have not been fixed. They pumped money into the economy and postponed the inevitable day of reckoning. They heaped additional regulation atop an already crushing regulatory burden. And in so doing, they helped ruin the country.THAT will be Bernanke’s legacy, insists Davidowitz. Not his creative use of a multiplicity of techniques to avoid bank failures and keep liquidity flowing through the American and European economies.
Bernanke’s mission in life, says Davidowitz, is to destroy the dollar. Eventually he will be successful. And this contribution to American history will never be forgotten.
Tags: Barry Ritholtz, Best Buy, Black Friday, Consumer Debt, Debt Load, Disposable Income, Ear Candy, Fed Meeting, First Fed, Holiday Shopping, Household Survey, Howard Davidowitz, Inimitable Style, Labor Department, Labor Pool, Language Change, Retail Analyst, Terrible Shape, Video Email, Wealth Effect
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Sunday, November 20th, 2011
(h/t: Barry Ritholtz)
Friday, August 19th, 2011
Wall Street “gurus” come and go, but in the case of Bob Farrell legendary status was achieved. He spent several decades as chief stock market analyst at Merrill Lynch & Co. and had a front-row seat at the go-go markets of the late 1960s, mid-1980s and late 1990s, the brutal bear market of 1973-74, and October 1987 crash.
Farrell retired in 1992, but his famous “10 Market Rules to Remember” have lived on and are summarized below, courtesy of Jonathan Burton of MarketWatch. The words of wisdom are timeless and are especially appropriate as investors grapple with the difficult juncture at which stock markets find themselves at this stage.
1. Markets tend to return to the mean over time
By “return to the mean,” Farrell reminds investors that when stocks go too far in one direction, they tend to come back to their long-term trend. Overly euphoric or pessimistic markets cloud people’s estimation and judgment of what they can reasonably expect.
2. Excesses in one direction will lead to an opposite excess in the other direction
Markets in a bubble can seem ready to pop, yet they manage to stretch into unrecognizable shapes — and still find buyers. Think of Internet shares a decade ago or real estate before the housing crash. When the bubble bursts, watch out.
Conversely, markets in free-fall typically spring back as if tied to a bungee cord. Think about the sharp bounce U.S. stocks have had since March 2009, when the Standard & Poor’s 500-stock index was about 80% cheaper.
The market’s recent volatility and investors’ uncertainty suggests that stocks are moving into another downswing. “Because we went so much higher [in the rally from March 2009 through April 2011], don’t be surprised if the correction is a little bigger,” said Barry Ritholtz, an investment manager and chief executive of FusionIQ, a quantitative research firm.
3. There are no new eras — excesses are never permanent
This relates to rules No. 1 and No. 2. Many investors latch on to the latest hot sector, and soon a fever builds that “this time it’s different.” It never is, of course. When the sector cools, individual shareholders are usually the last to know and sell at lower prices.
4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways
This is Farrell’s way of saying that a popular sector can stay hot for a long while, but will fall hard when a correction inevitably occurs.
5. The public buys the most at the top and the least at the bottom
The time to buy stocks is when others are fearful and sell when others are complacent. Accordingly, many market technicians use sentiment indicators to gauge investor pessimism or optimism, then recommend that investors do the opposite.
6. Fear and greed are stronger than long-term resolve
Investors can be their own worst enemy, particularly when emotions take hold.
To counter fear and greed, practice self-control. In down markets, keep enough cash on hand so you’re not tempted to sell at fire-sale prices and instead can buy on the cheap. In headier times, prune winners to the range you set for your portfolio’s asset allocation and use the proceeds to buy laggards. This strategy will help you to be proactive instead of reactive.
7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names
There’s strength in numbers, and broad, powerful market momentum is hard to stop, Farrell observes. Conversely, when money channels into a shallow stream, many attractive companies are overlooked as investors crowd one side of the boat.
That’s what happened with the “Nifty 50” stocks of the early 1970s, when much of the market’s gains came from the 50 biggest U.S. companies. As their price-to-earnings ratios climbed to unsustainable levels, these “one-decision” stocks eventually capsized.
8. Bear markets have three stages — sharp down, reflexive rebound and a drawn-out fundamental downtrend
During the week of August 8, U.S. market volatility reached a level not seen since November 1929. Over four consecutive days of trading the S&P 500 moved at least 4% each day — down 6.7%, up 4.7%, down 4.4% and up 4.6% — finishing the week off 1.7%.
Is this the awakening of a bear market? With Tuesday’s close, the S&P 500 is down 12.5% since its April 29 peak. Not the 20%-plus decline that typically marks a bear, but still a confidence-slashing encounter.
9. When all the experts and forecasts agree — something else is going to happen
Going against the herd as Farrell repeatedly suggests can be quite profitable, especially for patient buyers who can raise cash in frothy markets and reinvest it when sentiment is darkest.
10. Bull markets are more fun than bear markets
Source: Jonathan Burton, MarketWatch, August 17, 2011.
Tags: Barry Ritholtz, Bear Market, Bob Farrell, Bungee Cord, Downswing, Eras, Internet Shares, Investment Manager, Jonathan Burton, Legendary Status, Merrill Lynch, Mid 1980s, Quantitative Research, Row Seat, Stock Index, Stock Market Analyst, Stock Markets, Term Trend, Wall Street Gurus, Words Of Wisdom
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Monday, June 20th, 2011
Barry Ritholtz’s Washington Post column features his round-up of Seven Life Lessons of the Ultra Wealthy.
Here they are, but you should really read this enligtening piece:
- Having money is better than not having money.
- Don’t become “Cash Rich,” and “Time Poor.”
- Memories are better than material objects.
- Watch your lifestyle leverage, especially early in your career.
- Having goals is incredibly important.
- You must live in the here and now.
- It helps to be incredibly lucky.
7 life lessons from the very wealthy
Washington Post June 18 Page G6| Updated: Friday, June 17, 9:45 PM