I started this blog entry last Friday, and am actually pleasantly happy that things have gone further down. This all has to do with things that I have been talking about in previous blog entries.
Is it a time to buy? Undertrader says now could be a good time to buy.
The other important thing is to have PLENTY of cash for the first week in January to buy the stocks that drop due to people taking their profits this way. I would say 60% of my stock purchases for the last 5 years have taken place in the first week of January taking advantage of the profit sell-offs. Be ready for that!
Interesting thought, but one has to wonder, is it a time to buy? According to the blow horn Larry Kudlow it is time to buy, at least that is what he was saying last Friday.
Is it a time to buy? Hmm, Jim Cramer says the problems we have is due to the Fed. But not really, the real problem goes back to August. Let’s look at the returns for the past year for the American indices
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Do you see the pattern? We reached the high points around October, and November and since then have been treading water. Treading water as you know is quite useless because it is an action intended to lead to another action; getting saved or drowning. You tread water to save energy.
I started the blog entry last week because somebody whispered in my ear that the fund managers waited until now to lock in profits… And they wanted to lock in their fees. I am being very blunt here.
So have we seen bottom? From what I have been reading, hearing, and calculating, no. What really concerns me are the financial’s. I think they have only exposed half of their problems. I think there is still quite a bit of bad news. This goes back to my reasoning that until January many were treading water and hoping things were going to get better.
DISCLOSURE: I have limit orders to buy several financial institutions. I will not reveal which ones or what prices I have set as limit orders. Though my limit orders are fairly low.
Is Tech a salvation? No.
Yesterday Jim Cramer actually gave a good set of guidelines for investing in this year. I was very impressed. I hate his rant mode against the Fed, but his investing advice was quite sound. Outside of the thing against bonds.
He is confusing buying existing bonds, and new bonds. Buying existing bonds is not a good idea. Buying new bond issues is a good idea. Though typically buying bonds means locking your money for that period. Sure you can sell them at a later point in time, but you might not make money.
So what problem do we have? Remember in a previous blog entry I talked about PE and PEG inflation. I think right now there is a de-leveraging happening, and a squeezing out of the PE and PEG inflation.
I talked about what to expect in 2008, and beyond. One of the ideas I mentioned was property. And a few people pointed out that land is expensive.
When I talked about I land I meant undervalued land like the link. This piece of property is in the Laurentians, and is 25 acres with access to Lac St-Denis. I know the area we used to have a house there and it is pretty well priced. What makes the property interesting is the view and the sunshine and the size. I would haggle started at about 80,000 CDN. Look at a comparable property that is 8 acres and 70,000 CDN.
Why am I not buying that lot? Simple my wife and I already bought a lot last year in the St-Hippolyte region. 40 acres with a little private lake, access to Lac Achigan, and I think (hope) the price was right.
Now let me answer what to do:
- Don’t panic. You should set pain thresholds. You need to set realistic upper and lower thresholds.
- Sit down with your family or friends or colleagues and talk about the state of individual stocks and what the thresholds are. By communicating with close family and friends you are able make sound and rational decisions. DO NOT MAKE DECISIONS in a sound chamber (eg people who all think the same way) or by yourself.
- If the upper or lower thresholds are crossed you sell! No ands, ifs or buts. Might you have sold only to witness a bounce back? Probably, maybe, who knows. This is why you need to set realistic pain thresholds. The idea is to do capital preservation.
- Get an account that pays interest. The idea is capital preservation.
- Start setting your eyes on stocks that you want to buy according to Cramers ideas.
A note on pain thresholds. Ask around what other peoples pain thresholds are. The reason why relates to why I always go walking in the Canadian North with people who are slower. For if a bear comes along it does not matter that I cannot outrun the bear. I just need to be faster than the other people ;). Morbid yes, but get my drift?
A note on buying stocks. You set the prices. Don’t do momentum, or trend trading. Remember that there are oodles of large elephants that need to sell. These elephants might try to fool you into a sucker rally.
And finally don’t let the analysts tell you its a good time to buy. You decide! As much as I hate to say it Cramer right now might actually be your best advice. Before I was a bit skeptical of Cramer, but last night he gave very sound advice. Normally Cramer tends to rattle on about things and do things for entertainment value. I am completely skeptical of analysts and fund managers because they are sitting on toxic waste. I think right now they are going to be more interested in saving their skin than your skin.