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I’m Still Going Long and Hoping the Markets Go Down

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Re: I’m Still Going Long and Hoping the Markets Go Down

#41

Post by mattmaroon »

nostrademons wrote: post #23
davidw wrote: post #12

Earlier quoted context omitted.

Here's a question for the quant-minded: > So I'd be looking for value stocks that have a P/E ratio that's overly low The thing that makes me nervous about that kind of thing is that there are people who have written code that knows a lot more than my sum total knowledge of the stock market to look for those sorts of factors. Given actors like that, is there any reason to invest in anything but broad index funds?

I worked for a financial software startup from 05-07, and in my spare time there, wrote one of those programs that scans the whole market for stocks with low P/Es and consistent earnings. I found that nearly everything was fairly valued. When a stock had a low P/E, it was nearly always for a reason, like it being a homebuilder or financial or having a shaky economic position. No way was I going to invest in those. Wh…

We're in an unusual time period. People (especially the big funds) are right now being driven by incentives other than maximizing expectation, which is creating an oversupply of stock and pushing down prices.

Fear is, for the moment, outweighing greed.

Re: I’m Still Going Long and Hoping the Markets Go Down

#42

Post by mattmaroon »

timcederman wrote: post #10
steveplace wrote: post #3

Earlier quoted context omitted.

If you didn't have a risk management plan in place, for shame. Anyways, here's some stuff that will take the fear out of you. http://bigpicture.typepad.com/comments/2008/10/10-bullish-si...

I have risk management in place, of course. I'm not concerned about my losses, just wish I had the balls to capitalize on the falling market. Good link, thanks. So perhaps time to start buying soon...

Trying to accurately time the market isn't ballsy, it's stupid. It's the modern day alchemy.

Re: I’m Still Going Long and Hoping the Markets Go Down

#43

Post by kingkongrevenge »

nandemo wrote: post #36
kingkongrevenge wrote: post #7

Earlier quoted context omitted.

The markets will probably bounce in the next week or two, so there's a trading opportunity, but the historical record says you're a fool if you buy to hold now. Ignoring that stocks probably have more to fall, the behavior of falling markets is that they bottom and then stay at the bottom for a long time. Things trade sideways for a long time before any secular bull kicks off. You do not have to worry about missing t…

You do have to worry about missing the boat. Historically, there are a few days in the year for which the daily return is huge, say 4 or 5%. You cannot guess in advance. If you miss a couple of very good days, your return might be much lower than the market's.

In a secular bear the annual return is probably negative. By miss the boat, I mean miss the start of a secular bull. We were talking about buy and hold investors.

Re: I’m Still Going Long and Hoping the Markets Go Down

#45

Post by mynameishere »

mattmaroon wrote: post #40
astine wrote: post #25

Earlier quoted context omitted.

Well, the Great Depression had both the New Deal and the WWII to suffer through. Even if you support the former, you still have to admit that the later was a downer. Hopefully, we won't have to worry about either of those for time being.

I think you've got your history wrong. WWII was what ended the Great Depression. From Wikipedia: "The end of the depression in the U.S. is associated with the onset of the war economy of World War II, beginning around 1939." Also from War Economy entry: "On the supply side, it has been observed that wars sometimes have the effect of accelerating progress of technology to such an extent that an economy is greatly stre…

WWII ended the depression if you define "the depression" by its characteristic unemployment levels. In terms of quality-of-life, WWII was much...much...worse than the depression. Rationing, regimentation, agit-prop, scam war bonds, not to mention having to march off to war...all worse than the depression by far.

The notion that WWII fixed the depression is the "broken window" theory writ on a grand scale.

http://en.wikipedia.org/wiki/Parable_of_the_broken_window

Re: I’m Still Going Long and Hoping the Markets Go Down

#46

Post by mattmaroon »

mynameishere wrote: post #45
mattmaroon wrote: post #40

Earlier quoted context omitted.

I think you've got your history wrong. WWII was what ended the Great Depression. From Wikipedia: "The end of the depression in the U.S. is associated with the onset of the war economy of World War II, beginning around 1939." Also from War Economy entry: "On the supply side, it has been observed that wars sometimes have the effect of accelerating progress of technology to such an extent that an economy is greatly stre…

WWII ended the depression if you define "the depression" by its characteristic unemployment levels. In terms of quality-of-life, WWII was much... much ...worse than the depression. Rationing, regimentation, agit-prop, scam war bonds, not to mention having to march off to war...all worse than the depression by far. The notion that WWII fixed the depression is the "broken window" theory writ on a grand scale. http://en…

Well, I'd say that whether or not life during WWII might was worse than during the depression is a very complex question, and you'd get very different answers from different people at the time. It was clearly a lot better for some, a lot worse for some, etc.

Even if it was worse overall, it gave us an economy and nation afterward that was far better than before the Great Depression. It is, of course, impossible to say where we'd be without it today, but things like the GI Bill greatly educating the American workforce or women entering it significantly undoubtedly changed us for the better.

The ramifications of that war are so complex that we're still finding new ones, but I was just pointing out that it is generally considered the end of the Depression, and much of the reason for our following prosperity.

Re: I’m Still Going Long and Hoping the Markets Go Down

#47

Post by furiouslol »

nostrademons wrote: post #23
davidw wrote: post #12

Earlier quoted context omitted.

Here's a question for the quant-minded: > So I'd be looking for value stocks that have a P/E ratio that's overly low The thing that makes me nervous about that kind of thing is that there are people who have written code that knows a lot more than my sum total knowledge of the stock market to look for those sorts of factors. Given actors like that, is there any reason to invest in anything but broad index funds?

I worked for a financial software startup from 05-07, and in my spare time there, wrote one of those programs that scans the whole market for stocks with low P/Es and consistent earnings. I found that nearly everything was fairly valued. When a stock had a low P/E, it was nearly always for a reason, like it being a homebuilder or financial or having a shaky economic position. No way was I going to invest in those. Wh…

An almost risk-free way to money in the stock market is to put most of your money in fixed income while apportioning a small % in long dated options.

Eg. you think Morgan Stanley is dirt cheap at current levels ($10) and you are willing to invest $100,000 in them.

Action 1: You bought $100,000 worth of MS shares at $10 each

Action 2: You bought $90,000 in bonds that yields 11%. You bought $10,000 worth of Jan 2010 MS 5 call options at $7 each.

Scenario 1: MS gets nationalized or goes bankrupt Action 1: You would have lost almost all of your $100,000 investment. Action 2: If you hold out until your bond mature, you'll get back your $100,000 principal after 1 year. Your options is worthless.

Scenario 2: MS goes up to $30 Action 1: Your investment is now worth $300,000 Action 2: You get $100,000 from your bonds and your $7 options is now worth $18. So your investment is worth $125,000.

So Action 1 is very volatile and risky. Your profit range from -100% to 200%.

Action 2 allows you to sleep soundly at night, even during current market conditions. Your profit range from 0% to 25%. Hey not bad at all. In the worst case, you'll have at least preserved your capital.

Re: I’m Still Going Long and Hoping the Markets Go Down

#48

Post by furiouslol »

DanielBMarkham wrote: post #8
Prrometheus wrote: post #6

Earlier quoted context omitted.

I remember seeing this graph not too long ago that showed the P/E ratio of the stock market took off in the '90s and it never came back to its historical average range. The graph predicted that the "real" value of the Dow was in the 7,000 - 8,000 range. The people passing around these graphs would have looked like cranky perma-bears a few years ago. Now they look down-right reasonable. It's not a crash, it's a readju…

Usually during a re-adjustment the market swings too far the other way by a few points. So I'd be looking for value stocks that have a P/E ratio that's overly low. Find some stock that's getting beaten up beyond the normal recovery by panicked sellers.

There's a reason why those trailing P/E are lows. The E will decrease drastically in the future. You have to make really good guesstimate on what the E will be in the future before you can determine whether it is cheap.

There's a lot of danger in picking stocks based on P/E. You have to look at their debt ratios and short term financing requirements. You should avoid highly profitable firms that use crazy leverages in achieving these high returns.

Re: I’m Still Going Long and Hoping the Markets Go Down

#49

Post by marcell »

nostrademons wrote: post #23
davidw wrote: post #12

Earlier quoted context omitted.

Here's a question for the quant-minded: > So I'd be looking for value stocks that have a P/E ratio that's overly low The thing that makes me nervous about that kind of thing is that there are people who have written code that knows a lot more than my sum total knowledge of the stock market to look for those sorts of factors. Given actors like that, is there any reason to invest in anything but broad index funds?

I worked for a financial software startup from 05-07, and in my spare time there, wrote one of those programs that scans the whole market for stocks with low P/Es and consistent earnings. I found that nearly everything was fairly valued. When a stock had a low P/E, it was nearly always for a reason, like it being a homebuilder or financial or having a shaky economic position. No way was I going to invest in those. Wh…

"I found that nearly everything was fairly valued"

Does this still hold in light of the stock market crash this last week?

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