What goes down must come up? I spend considerable time in my new book explaining that markets always recover. The cynics argue it’s impossible to get the timing right, so why bother trying.
I’ve been pretty good at timing over thirty years – not perfect – but investor sentiment combined with headlines provides one of many robust indicators.
“Stocks look to snap 6-week skid”
and it was followed by the subheading: “The good news: 81% of the time they do”
Although I agree with the consensus on Wall Street that stocks are not on the verge of a major collapse (and anticipated the current weakness in past blogs primarily caused by Japan, seasonality and growing interest rate fears) it is clear we’ve been suffering a minor collapse. I don’t believe it’s over just yet because everyone is still expecting it to snap back. Unlike last summer (when I wrote A Maverick Investor’s Handbook outlining why at that time all signs of a bottom were evident), there’s still too many investors in denial. It might sound contradictory – that markets always recover unless everyone expects it to recover. NOT SO! Eventually (human nature I suppose) there’ll be no real difference between short term and long term expectations like there is right now. It could take days, weeks or months but it will happen and that will signal a bottom.
Here’s a quote from a friend of mine this morning: “So this is our dilemma. There it is – it’s all laid out. The markets corrected a bunch and now there’s nothing but bad news. Invest the money.” No doubt he’ll be close (we are in fact getting closer as the bearishness grows more contagious) but too early. Better to wait until even he has given up hope.
I was chastised by Jim Rogers when I suggested a month ago that the commodity bubble was about to burst. He called the bull market in commodities back more than a decade ago, and has been reeping the benefits ever since. He sent this to me in response:
Rogers: “I will send you a chart shortly showing the commodity bull market started in January 1999. I find it strange you even try to comment on commodities if you know so very
little about them. But that is good for the market since there are millions who could not even spell commodities 10 years ago that are now experts. They will continue to be wrong.”
There’s always a bit of trouble with semantics when money managers talk to one another. Mr. Rogers is looking at the longer term, and I’m more inclined to break up the long term into manageable bites. (PS – you know you hit a soft spot when you get a shot like “if you know so little about commodities…” instead of an answer lol). In a second response, it was clear he and I are more in agreement than not:
Rogers: “The bull market in commodities may go on for several more years as I explain in my book although there will be big consolidations along the way as there always have been in every bull market in history.”
It’s the consolidations that create opportunities – whether we call them bubbles bursting, corrections or whatever. A series of bull and bear markets (or uphill and downhill roads on a Harley) whether in stock markets, currencies, bond, commodity stocks or sectors, is what makes the journey interesting.
If you refer back to the photo (just got back from a very rainy road trip to Laconia, NH for bike week) we’re still going downhill with an occasional knoll (maybe we enjoy one today?) But it’s when we can clearly see from deep in the valley that the only way forward is uphill, it will be time to buy.