Saturday, November 22, 2008

Everything You've Ever Learned About Investing

Has gone for naught. Why you say? Let's review.

Every day there are multiple headlines detailing reasons for stocks up/stocks down and "technical" analysis of market bottoms. As we've crashed through every level this year and headlines are outdated by the time they're printed, you realize that not even most, but simply all of the people advising you about the market have been dead wrong (we'll make allowances for
J. Paulson and Taleb).

Diversify. Yep, that's worked out well this year. Just ask Harvard about their diversified endowment portfolio with 8 or 9 sectors each losing over 30% this year. Aside from inverse ETFs, tell me where the "smart" money has been this year?

Dollar-Cost-Averaging. Solid advice. Right up there with the progressive betting strategy in blackjack. Imagine you throw $500 at a stock that started at $100 in January that now trades at $26. You've bought that stock at higher prices 11 times this year. How long will it take to get your money back?

Blue Chips that pay dividends. Ahhh, excellent reco. With Microsoft 50% off its highs and banks 60%-90% off of theirs with dividends slashed to pennies, wouldn't have worked out too well for you this year.

My point? Remember this game, the market, is gambling. Mutual Funds and CNBC have tried to convince you otherwise, but don't be fooled any longer. Take my Citi purchase the other day. Low risk? No way. I've recommended shorting the stock dating back to January. With the stock cut in half already, I am looking at either a breakup and win scenario, a merger and win scenario (longterm), or bailout and complete failure scenario. The other end of that bet was a rush to gold if Citi goes under, and with the price rising over $100 in 2 weeks and my GLD 1/10 calls gaining 60% yesterday, think that was a good call.

We will continue to look for armageddon insurance and yesterday's 500-point uptick shouldn't scare you. Notice Ryland and the homebuilders still managed to get hammered yesterday.....


Tiger Coach said...


You are right on about the GOLD!!! I wish I would have made that buy... but I think it will be "in play" for a while... Maybe some otm on the commercial real estate like your ggp and gnw ideas.... Let me know what you think!!!

Check out megatrends 20 and 10 year SP returns... Outright SCARY!!!

AX said...

Scary indeed. Same point I made about hedge funds this year and same point Taleb has been making foryears. Risk a lot to get a little and then when it blows up, you lose it all.

DCNorth said...

Hello Ax and TC

Just wanted to wish you and the family a Happy Thanksgiving!



AX said...

thanks, DC! Almost hoping this fally carries on another 1K points so we can short the same stuff all over again + more homebuilders. Look at durable goods orders and new homes, horrible! Would love to see USO go to $35 and we'll go long. Take care.

DCNorth said...

Hey Ax!

A good homebuilder to look at would be KB Homes. Lots of exposure to California and Florida! Toll is another, people are struggling to stay in a house much less the fancier ones that they sell!


AX said...

DC, high on my list right in front of me, actually had some bids in this week that failed, would love for it to go to $15 in the next few weeks. Still looking at ETH and now MLHR as well.