Market Timing Brief for 8-16-2011
I’m going to do the Brief differently today and I would like YOU and others to add to it. Let me explain. When you invest, you must do so without fear and without greed. Those emotions kill capital in my experience.
So how do you get to a place where you become “clear” in your thinking, where your mind is not muddied by fear and greed? You do it by writing down the Pros and Cons of investing or trading even if there are just a few points to list and then seeing where you stand. You need to quiet your mind, before you can get past fear and greed and make what people call “rational decisions.”
Rational decisions are not “mental decisions.” Why? Because your mind is incapable of truly solving the riddle of the market. It is only the intuitive side of your mind that kicks in, and this is the key, AFTER you have considered all the pros and cons on a subject.
The reason writing down “Pro and Con” lists is suggested to human beings to solve their problems is because it is the best way for you to shut off the crazy fact-ridden intellect by writing down the facts or at least considering them in your head. You do not ignore the facts. You consider them without fear or greed. You get to your intuition, which will give you the best available answer once you do this work.
Will your answer always be right if you get it intuitively? No, but you will improve your results in my opinion. The reason is that the answer is only as good as your mind is quiet. The good news is that good answers can be found even when some fear persists. We all know this. Comedians have commented on their nervousness before great performances. What they did not necessarily recognize was that they did not need to be fearful or nervous to do well. Same with investing. A little fear won’t hurt you but a lot is likely to ruin your investing and trading results.
If you want to learn more about this, see my Fear and Greed page here: Fear and Greed May Destroy Your Market Timing/Investing Results
So let’s do it. Let’s TOGETHER compose a Pro/Con list about this stock market. Is it going to be straight up from here or is there going to be a short Bear Market Rally followed by another decline?
We’ll use the SP500 Index as our market today for this. Read my list and add to it in the comments. I’ll compile the answers by tomorrow sometime. But let’s begin:
Investing at this level in the SP500 Index:
– The market may have bottomed last week during the panic.
– The VIX index is falling. That is positive.
– The European situation is settling down somewhat.
– The market was greatly oversold and still has room to bounce.
– The public is not panicking out of stocks yet. Many have left the markets anyway.
– Our growth may have slowed to 0.4% GDP growth, but it may not fall much more.
– Christmas spending is right around the corner.
– As long as we don’t make new recent lows, why sell?
– Warren Buffett is buying, so why shouldn’t I be? Even if he does not catch the bottom, the companies he buys rise in price, so who cares if the market pulls back another 10% from here. It will be even higher in 6 months based on value.
CONS (to investing in the SP500 Index):
– Europe is far from out of the woods and was the main reason for our market breaking down.
– Recession is very possible, that is re-recession, because GDP slowed to 0.4% last month and may drop below the zero point next month.
– European GDP was showing 0.2% growth today, almost zero, which will weigh on our multinationals doing business there, bringing down our PE ratios, hence our stock prices.
– We are spending too many dollars and our debt downgrade will hurt our ability to get credit. Higher interest rates means higher costs for companies who need to borrow to expand.
– Investors who are overweighted in stocks should sell into the strength we’ve seen. That will cause a retest of the lows and perhaps a failure to hold them.
– The VIX usually has other spikes during a sell-off of this magnitude, so why not wait until that happens, before buying?
– Without a retest of the recent lows at least, we cannot move up. A retest is 7.6% below the close today. What if it does not hold?
– The market could easily fall to the July or August 2010 lows. that is 7.2% below the recent low during the panic last week.
– Warren Buffett is well known to buy too early at times.
– Stocks are overvalued given the possibility of re-recession.
– Hedge funds won’t want to give up their recent profits on this mini-rally and as they protect them, the market will retest somewhere around or maybe just above the lows.
So what did I miss? Join in! I use the feedback I get to decide what to write.
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I really like your writing style, superb information, appreciate it for posting : D
Thank you. Thanks for your feedback!
I am somewhat clueless as to market timing. Have you heard of earth-changes-matrix.com? The author of the site studies the causal relationship between solar activity and earth changes, mediated via the earth’s geomagnetic field. He recently remarked that Mayan prophecy identifies the “last 10 days of August” (this year) as troubling. Does that mean anything for the markets? ???
I have not heard of that one but one very famous system of market timing by W.D. Gann is based on astrology. I follow my technical view of the markets developed for over 11 years with intuitive inputs based on economics and other fundamentals in doing what I call “Conscious Investing.” The best endpoint as I’ve discussed in a recent blog post is your final intuitive answer, after you have gone through all the data and have dispensed with fear and greed.