Retired Investor, Living on a Pension

Old age begets senility. Buffet let his investments cook for 30 years and he did good. Now that he has nothing to lose, he's decided to bow out spectacularly. Who buys into the left side of a base? Only a madcap who wants to lose everything. This is not a correction, this is a full-fledged crash. If no trendlines had been violated, then you could call it a correction. In future, when you're down 10 or even 20%, stop and think and re-assess. Would you rather be down 50%?

Should you sell now? You bet! When someone goes public and says "Don't Bail on Mutual Funds Now as Market RAllies in Aging Bear", THAT's THE time to sell. For the way the market fell last week, if it was a true bottom, you would expect a strong - really strong rally. What have we seen? A fizzle - worse even.

According to Lipper, investors pulled $100b from mutual funds in Sept.

People have heard reports the Buffet has been buying. Really? Question is - did he sell in time or not. If not, then where did he get money to buy from? If he had money, why didn't he buy out all of Wall St?

Can you regret not staying in the market now? Absolutely! Remember, some of the biggest up days the Nasdaq ever saw were during the bear market. When stocks fall really low to become good bargains, they will be bought. But, the people who buy are not going to stay in the market and take risk. They will sell pretty soon - and you need to beat them.

Have we seen that after this historic down week? No. What does that mean? More drops!

Who has been right so far? The Royal Bank of Scotland is down 85%. But, about 5 months ago they asked their private clients to move into cash warning of a full-fledged crash in the worldwide equities markets. That's what we're seeing now. Don't buy a damn thing until the 50 day and 200 day moving averages show inflexion. Once they do, you will know that the bear market is nearing an end. That, unfortunately, can take about two years because of the recession.

There was a movie I saw in which a matronly woman doing housekeeping sort of work talked about being a secretary at GM and being able to tell that the crash was coming - because she saw General Motors going to the toilet 20 times a day. Working for a bit outfit myself and seeing the stress take its toll on my CEO, I can warn of the same. Will GM go bankrupt? You bet! Just look at Wagoner's face on that YouTube gig and compare him with what he was 3 years ago in the MIT World video. You simply cannot be successful today trying to build TVs - or VCRs, or, even, personal computers. That is not what this country does. What we do here is shape new technology. Cars are old technology. They need to be built by people willing to do science and perfect mature technology. That is why America would never dare to make TVs. Can we make great TVs? You bet! Can we make great TVs and sell them competitively while offering our employees competitive benefits packages? No sir!

Should you consider stocks? Yes - start building a watch list. In about 6 months to a year - you can pick stocks with good fundamentals and technicals and start averaging up. Cut your losses!

If you're in the market now because "I can't sell now! I'm already down XX%", forget it - make sure you have 2 years cash on the sidelines - never mind how much you lost. It's just going to get worse and worse for another 6 months. 20% is considered a full-fledged bear market. 10% is considered a correction. This is already more than 40%. Will there be a near-term rally? Likely. Should you try to profit from it? Be your own judge - do you have what it takes? In a year or two - when you can look at the chart and see for yourself that all the selling is over and volume has dropped and people have lost interest, you can think about getting back - and, like IBD says, don't go in for the beaten-down past leaders - go for the new leaders.

Take the article I'm referring to on bailing out of mutual funds. On the same page - IBD's Katzeff says "Fleeing the market deep in a downturn is usually precisely the wrong move. You can make a lot more money by sticking with a diversified stock fund. If everyone else's panic has got you thinking of throwing in the towel, consider this: you've already proven you're not a skilled market timer by not selling at the top. Don't turn inexperience into error by selling now near the bottom."

What a bitch! How the hell does he know it's the bottom? Later, on the same page:

The CBOE Volatility Index, or VIX, skyrocketed to its highest point in history on Oct 10. That day marked Wall St's worst weekly drubbing ever. Late in the day the government said ... banks. On Thursday, the VIX set another gut-wrenching peak before stocks vaulted higher.

The VIX has been a mixed predictor of market bottoms. (Specify mate!) But taken with Thursday's follow-through, it is another key sign that this is not the time to leave the market.

Also on your side, : time. Since 1929 there have been 15 bear markets, according to Standard & Poor's. They have averaged 19 months in length. That includes 1990's July-October plunge, which fell 0.1 percentage point short of being a full-fledged bear, a sell-off of 20% or more.

This current bear is already a shade more than 12 months old. If history is an accurate guide, that puts us much closer to the end of the current swoon than its start."

Really - that means we've got another 7 months to go. What a bitch! He's contradicted himself already. Goner.

What the hell are they not telling us? When did the VIX peak during the dot-com bust? Have you heard anything about that? (if you get nothing else out of this, take atleast that much away - and ask that question the next-time someone mentions the VIX) I'll bet it was nowhere near the bottom. No sir - there was a massive downturn and volatility, and then, people just resigned themselves to either waiting it out or pulling out completely with big losses and stocks just petered out - a lingering death.

You have to wonder about how stocks fall during the "resigned to falling" phase. What's going on? When someone sells - someone else has to buy. To entice a buyer, you have to lower the price if noone is willing to buy at the prevailing price. So, really what's going on during this second post-VIX-peak phase of the bust is that the professionals are getting back in and getting ready to sell when the second round of bargain-hunting fuelled volatility comes. Indeed - if they dumped all their shares at once - then the first, highly-volatile phase would not have ended yet.

When you're told to buy now - look closely at the person who's advising you. When you're in a confirmed downtrend is not the right time. After you plateau out (a phrase I learnt from my CEO in a round-table), and after a couple false starts, you can start getting in at the dips - but, like someone pointed out - for the confidence to return (so you can see returns on your investment because greater-fools exist), will take a few years.

With absolutely no formal training, when the DOW was still above 11k, I was able to predict correctly that we could see 9000 or 8000 - which seemed deadly at that time - but, now that it's over, it doesn't seem so bad after all. Can we see 12000 before the market bottoms out completely? Sure - a 50% rebound is easier on a smaller principal - that's basic arithmetic.

Is this different from 1987? Ho ho ho. You bet! Did people make the same mistakes they are making now? You bet! Were they punished then? Absolutely not. Reason? That crash was a pure correction - it was purely technical - even now, people don't know the exact reason. The real reason was that due to the prevailing force in the market at that time, a positive feedback situation resulted - which only ended when the market closed - and time was then available for correction. In those days, computers couldn't keep things moving like they can now - so human intervention could actually do something. Nope - we're all screwed - for another 6 months anyway? After that? What - think about the national debt crossing 10 trillion, think about China owning a lot of that debt, about the fact that the houses have already been built - so if you need a new house - you buy one that is new because no one has lived in it - but is already 4 years old. About the fact that GE is to reinvent itself froma diversified operation back to a focussed technology company. Think about all that and you'll see that you're better of waiting a few months. Trust me - in the stock market - no one lost out from waiting out 6 months. Even in the greatest bull market - unless you got in at the top - you could wait out 6 months. If you get in now, you're going to be taken for a ride.

That being said - I do want the market to go down because I've pulled out and need to get back in lower:) So, treat my advice with caution. I'm looking out for myself not for you:)

20 Moves

How I spent last evening.

And 5 minutes of this evening. (Not without blemishes, unfortunately)

BTW, today was the first time I saw (I think) a repo man - a big, white guy in a tow-truck with Recovery Solutions somewhere on it going all around the complex looking for a certain car.