Friday, October 17, 2008

Sports n Stocks

Sports and stocks. The very first website I ever made was all about just that -- sports and stocks. In a way, if you consider poker to be a sport like many do, then that's all this blog has been about lately either. So why not continue the trend I started when I built my first website more than ten years ago now with today's post.

Wow what a game last night in the ALCS. The Rays were up 7-0 in the 7th inning before giving up a run and then a three-run blast to Big Papi, and then the Sox tacked on three more runs in the 8th to tie it up heading into the 9th inning. They held off the Rays in the top half of the 9th, and then finished it off by scratching out a single to knock in the game winner walkoff-style, sending the hometown Boston fans into a frenzy. Talk about a team that's been there before. Anybody who doesn't believe the Red Sox could come back from a 3-1 deficit just doesn't pay attention to baseball history, as believe you me it's still very fresh in people's minds around New York City where I live what the Sox did in coming back from that incredible 3-0 deficit and down a few runs in the 7th inning a few years ago on their way to breaking the century-long curse and winning their first World Series since trading Babe Ruth to the Yankees for a pocketful of cash. It's so nice for me to be able to just sit back and watch these games without stress for a change, knowng that my team is already in the World Series. Unfortunately, for tv reasons I'm sure, the World Series is already scheduled to start next Wednesday night at the AL team's home field, regardless of when the ALCS actually ends, so the Phillies can't really expect much benefit even if these teams play two more grueling 15-inning games and have to really deplete their pitching staffs to do it. I believe Game 7 is scheduled for this Sunday, if needed, so even then every pitcher on the winning team will have at least three days rest before the Fall Classic kicks off. So I'm just looking forward to one -- or hopefully two -- more great baseball games that I can just kick back with a beer or three and relax and watch. And I really don't care who wins the ALCS -- both teams are pretty much great, and although I think the Rays are a little bit better given their performance and given the lack of Manny Ramirez on the Sox, who would be the obvious favorite with that phat bat in their lineup of course, but then I think the Rays' youth and inexperience probably hurts them in the biggest games of each one of their lives as compared to the Red Sox, who at this point have been there and done that, and had their backs to the wall on the sport's biggest stages many times before at this point. Just give me one of the teams and let's get it on next Wednesday night!

Updating the situation with the stock market, I have reached an important point in my own head: I am ready to buy some stocks. I have been fortunate enough not to have been burned too badly by the past month's market weakness, and at this point I have a fair amount of cash on the sidelines that I want to move back into the market when the time is right and the values seem to be there, and I have to conclude that this is that time. Now I'm not trying to say I am picking the exact bottom of things -- one of my absolute favorite sayings among traders is that "Those who pick bottoms end up with smelly fingers" -- but the conclusion I have reached is that below around Dow 9000 represents some solid values among those stocks which are poised to grow or at least to hold up well even among some economic weakness, regardless of whether or not the market drops a bit more or the more likely scenario of taking some time here to really rally to any meaningful degree.

I was originally going to buy on Friday morning, more or less right at the open, but then I saw this headline, so I figure I will probably wait until Monday to get in. Let's just say that our esteemed leader does not have a good track record of getting investors to feel calm, confident, or anything but freaked the phuck out whenever he speaks to us of late, and I just don't feel like buying in and then watching Clueless George talk stocks down to another fun 5% drop. That said, barring anything shocking or historic happening, what happens on Friday specifically wiil not affect my interest in buying back in to the market on Monday. If stocks rally a few percent to end the week, I will be happy buying in at those levels on Monday morning given the values I see out there at this time. If the market falls a few percent, I'm not going to be scared away by a little more weakness or some more volatility in a time where the Dow has moved triple-digits in 21 of the last 24 trading sessions.

One of the most obvious precepts of good investing in theory, but most difficult in practice, is the old adage of buy low and sell high. It is obvious, of course, the most obvious thing in the world, that this is the only way to make money investing. And yet, despite how painfully obvious this fact is to basically everyone out there, it is equally painful to see how many thousands -- millions even -- of investors around the world put their entire life savings into the most speculative assets in markets right at the peak of the bubble at the highest prices imaginable. And often these are the exact same people who want to pull everything out of the market in times like this, when stocks are at historic lows. That's what we call buying high and selling low.

Why do so many people fall into this trap? It's simple, really: because it is easy. It always easiest to go with the direction the market is moving in. One of the interesting (and I think, fun) paradoxes of investing, whether it be in stocks, in gold or commodities, in a house, etc., is that when assets are at their highest, it feels very attractive to buy them up in droves, often without even thinking about valuations. This is why so many people got burned buying Yahoo! or Amazon shares ten years ago in the multiple hundreds of dollars per share range. Because back then, everyone and their 90-year-old grandmothers (literally) were making money daytrading these stocks and watching their prices skyrocket through the roof, with absolutely no regard whatsoever to traditional valuation principles or any kind of rationality at all behind these stock moves. It's the same reason that so many people jumped in and bought houses over the past two or three years, after housing prices had jumped some 20% per year for the previous five. Sure, everyone knows in their head that they're supposed to be selling high, not buying high, but when you're actually living in the moment and everything is high, things are only high because it feels like they're going to keep going up forever.

It's the same thing on the downside, like I think we are right now in the stock markets. Even though the market has lost roughly 40% from its highs just one year ago -- highs which I firmly believe were overstated, as the market always does in both directions -- with all the craziness and volatility and all the losses of the past several weeks, people are pulling money out of the market right now in droves. Mutual funds and hedge funds had their worst month in more than 20 years in September as far as redemptions and selling by holders of their shares, and I guarantee you October will be even worse than September was once the data is out in a few weeks. Selling out when the market is down 40% from its highs in just one year is of course totally counter to the idea of buying low, and yet just like with the above example, when things are low like the stock market is now, those prices are low precisely because people are scared to own stocks. If everyone wanted to buy now, the Dow would never be below 9000 as I type this.

I have been very successful over time investing not so much against the herd per se, but rather sticking with the old adage. I buy when assets get cheap, and I sell them when they get expensive on a relative basis. It's not that I don't pay attention to what's going on with the economy or in the market at large -- hopefully my posts over the past several weeks have shown much the opposite -- but the bottom line is that in my view, stocks have been hammered as a result of all this badness, and at this point I am seeing lots of companies that look like not just good but great values at the prices they are currently trading at. So I think I will stay away on Friday because Bush-or-chimp is speaking publicly in the morning, but I expect to buy in more or less first thing on Monday to some of my favorite names at very favorable prices.

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Blogger RaisingCayne said...

Nice post Hoy. While all very intuitive points, this financial 'common sense' is obviously not prevalent to the masses. Good luck with your forthcoming purchase decisions. Like you imply in the post, there's some solid value available right now when traditional valuation principles are used to measure worth.

Have a good weekend.

3:47 AM  
Blogger Memphis MOJO said...

Are you Warren Buffett in disguise? Here's a recent quote from the oracle (NY Times, yesterday):

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

4:21 AM  
Blogger Hammer Player a.k.a Hoyazo said...

Memphis: No comment.

Now where did I put my cane and my Geritol?

4:25 AM  

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