Sept. 29, 2011- Tuning in to many different sides (Linkfests)

I believe in wisdom of the crowds.  Normally, I stand still.  I look around.  I gossip around (through twitter, newsfeed and links) on the market pulse.  Is everyone bearish?  Why?  Is there someone bullish?  Why?  At best, I try to form an opinion for myself on what I should be doing.  Am I getting too scared?  Am I getting too greedy?  This helps keep me in check so that I can have an open mind, willing to take advantage of any opportunities that may come my way.

Assessing the market landscape is my personal method of trading.  Psychological impact and behavioral finance is how I interpret things.  Others like to read on financial statements.  I tend to read people’s behaviors.  Sometimes, those behaviors can be more easily seen in charts.  Other times, when things become too hazy, social media helps come into play.

Here are some videos and links that I believe are good view points:

Again, I do not want to have sheep following me around.  I’m not a shepherd. Hopefully, my articles can help instead to free yourself from your own biases.  It’s a hard thing to do, I, myself am having this problem (in remaining- open minded- at all times).

Watch the following videos.  Don’t take my word for it.  These people have been trading for many decades.  They don’t know either what would happen.  Proactive asset managers are simply constructing a portfolio where whatever happens, they’re prepared.  So should you.

1.) http://www.bloomberg.com/video/76281916/– There is no way to time this market perfectly.

2.) http://www.bloomberg.com/video/75903616/ – This may be market bottom.

I see the point of bearishness, but we’ve already discounted the recession.  We could get a new low, but 6 months ahead, we’ll have higher stock prices.  The stress is already too much.

3.) http://www.bloomberg.com/video/73824646/ – I don’t think this rally will last.  I think we have a choppy period.  However, from a 5 year term, this is a buying opportunity.

4.) http://www.moneyshow.com/video/video.asp?wid=7378&t=3&scode=009597 – (Just click the video from Jim Jubak entitled Overcoming the Crisis of Confidence).

It just keeps going on and on and on, and as you can see. That is not a recipe for stock prices to move higher.

5.) http://www.investmentnews.com/section/multimedia?playerType=INTV&bctid=1183551321001 – Joshua Brown, Time to Bail or Buy?

– And It’s official.  Stock brokers are more reckless than psychopaths.

http://www.spiegel.de/international/zeitgeist/0,1518,788462,00.html

– The Faceless Trader — is a psychopath.  You’ve been warned.

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3 Responses to Sept. 29, 2011- Tuning in to many different sides (Linkfests)

  1. If you’re not a shepherd would you consider being Mary instead and we can be your lambs? hehehe What is with me and all the nursery rhymes ei? Just playing along, I’m feeling like a psychopath today as well. 😉

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  2. Mon says:

    My profession has exposed me to mostly fundamentals. However, I do consider technicals, flows, and other factors as well. What I can say about the current market?

    In the 3 market bottoms that I have seen: 1997-98, 2000-02, and 2008-09, there comes a point when valuations are so bombed out that the only thing the market has not priced is the end of civilization. For the Philippines, this is 9x PER. We are not there yet. We are at the moment 13x PER. Long way to go. We may not even get to 9x PER. But just to put a number, based on my calculator, 9x PER is 2600. There. So superimpose your technicals and you may or may not get the same number. But suppose you do. Then that’s something.

    What can I say about Asia? Since 1975, the lowest Asia has been is 0.9x PBV (I used PBV in Asia because that is the available data at the moment) during 1997-98. The highest is 3x PBV. The average since 1975 is 1.8x PBV. The 2008-09 low was 1.3x PBV. So where are we now? 1.5x PBV. Gives you a perspective on how low we can go: we go Lehman-like, 1.5x to 1.3x, we go Asian financial crisis-like, 1.5x to 0.9x. At the current level of the Asian stock markets, it is pricing 1% nominal earnings growth to perpetuity. Assuming Asian inflation is 3%, that’s earnings growth of -2%. To perpetuity. That’s too pessimistic for me. At this level of Asian stock market valuations, since 1975, it has been higher 90% of the time over the next 12 months with an average return of 24%. Yes, it has been also lower 10% of the time over the next 12 months with an average return of -17%. Since 1975, at this level of Asian stock market valuations, the market has been higher 100% of the time over the next 36 months with an average return of 147%. Past performance is not indicative of future results. However, strange that Asian stock market cycles always begin around 1x PBV and end at 3x PBV. Perhaps, Mark Twain was correct after all. “History may not repeat itself, but it rhymes.”

    Globally, if you look at flows to/from EM funds, during 2008-09, it was an outflow of $45Bn. from January to date, we’ve only seen $30Bn. so far. Some way to go if the next few month’s are going to be Lehman-like.

    Will the Greece / PIIGS saga become something like Lehman. I don’t think so. We can do it all over again, we probably won’t let Lehman fail. In hindsight. Sure, there’s all that moral hazzard talk. But that appears to be the lesser evil compared to what the world is facing now. Remember, if it wasn’t for Lehman, none of the bailouts would have happened in the same magnitude. None of the developed countries would have been so indebted (the EURO issue is beyond the scope of this comment).

    Yes, investors can be irrational. Markets can be inefficient. Investors need to be solvent/liquid/flexible longer than the markets can remain inefficient or even irrational. After all, markets are made up of people. So which doesn’t get irrational? Fundamentals, always objective. (Again, issues like Enron and Worldcomm are beyond the scope of this comment). Like charts. So we use them as guideposts.

    Is now the low? Possibly. Can it go lower? Possibly. Should one buy? Should one sell? Normally I don’t answer this question without considering other factors like risk appetite, investment experience, financial objective, current allocation/positioning, liquidity requirements, and time horizon.

    Great post as always. Looking foward for more. Keep it up! Cheers!

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