Has the stock market sold off enough?

It’s been a fast and furious decline of 2% to 3%, but may enough is enough.  Bonds have rallied some as (especially institutional) investors topped up – putting their equity buying on hold.  Why?  As I’ve said in earlier commentaries (scroll down) – because energy prices are going to whack corporate profitability, consumer spending and the economy.  Interest rate policy won’t be needed for several months by the look of things. 

Want a laugh?  Read this old (2004) so-called ‘review’ of my Resources Rock book – I found it on Amazon:

One of Mal Spooner’s other fund the Mavrix Growth Fund had the fourth worst 5 year return of all mutual funds in Canada ( as of Fall 2004 ) . It lost 28 % per year every year for the last five years . For every 1,000 dollars you had invested five years ago it would be worth 180 dollars today . Now he thinks he is a guru in rocks and oil . Incompetent , reckless gambler without a clue about investing period .

My new book discusses emotional reactions just like this.  He was angry – after all he no doubt bought the ‘growth’ fund I managed at its glorious peak – the performance was stellar for a few years running and I was often featured in the media.  In other words, he likely bought it just before the dot-com bust, and to make matters worse that bust was followed by 9/11 and the recession.  I’m not proud of what happened, and even though many of my technology analyst friends and porfolio managers lost their jobs during those gruesome years I can’t excuse myself as a portfolio manager buy saying “well, at the time all similar funds posted the same ugly results.”  However he’s wrong about one thing – I hate gambling and A Maverick Investors Guidebook devotes many pages to explaining the difference between gambling and investing.  Buying a mutual fund (or stock or whatever) based on it’s historical performance is gambling, not investing.  And mixing emotions (anger, disappointment, joy, and all the others) when investing your money will have grievous consequences….ALWAYS!

Back to my question.  Has the market sold off enough?  I’d venture a guess and say yes it might have.

As a result, I will be topping up some names, but still avoiding metals (gold, copper) and oil plays for the time being (see prior postings by scrolling down).  Am I recklessly gambling?

1) I saw an ad this morning “INVEST IN COPPER…THE NEW GOLD” which suggests that game is done for awhile.  Copper inventories are huge, the price is inching down and the Chinese just aren’t buying it anymore.

2) Despite the damage being done by oil prices and conflict in the mid-east, there are plenty of sectors that corrected but are still doing fine fundamentally.  You’ll have to dig them up yourself.

3) The names I like are on sale.  If I wanted a camera and it was on sale I’d buy it on sale.  The bigger the discount, the less of a ‘gamble’ it is.

By the way, the fund I launched at roughly the same time as my Resources Rock book was published – and it’s obvious by his comments he didn’t even read it – took off like a rocket for several years.  Was it because I’m brilliant?  I’d like to think so, but I know better.  The sector was a dog’s breakfast at that time with nowhere to go but UP.  Any fund is just the sum of it’s parts:  a portfolio manager is contrained by his mandate, and his picks.  If his mandate and stock picks are confined to sectors with no buyers and just sellers then you should abandon the fund.  Don’t expect him to do it for you – he has a regulator, an employer and a boss who won’t let him.  They’d rather you lost your savings, fire that portfolio manager and talk you into some other bad idea.

About Mal Spooner

Malvin Spooner is a veteran money manager, former CEO of award-winning investment fund management boutique he founded. He recently authored A Maverick Investor's Guidebook which blends his experience touring across the heartland in the United States with valuable investing tips and stories. He has been quoted and published for many years in business journals, newspapers and has been featured on many television programs over his career. An avid motorcycle enthusiast, and known across Canada as a part-time musician performing rock ‘n’ roll for charity, Mal is known for his candour and non-traditional (‘maverick’) thinking when discussing financial markets. His previous book published by Insomniac Press — Resources Rock: How to Invest in the Next Global Boom in Natural Resources which he authored with Pamela Clark — predicted the resources boom back in early 2004.
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