The Latest in Government Propaganda

Other than a little more than two years ago when events in the stock market and the financial markets worldwide took over center stage of the attention of everyone in the free (and not-free) world, I have tried hard not to make this spot into a stock market blog. There's a lot of reasons for that, but basically it comes down to the fact that I've already been there and done that. I've mentioned this a couple of times before here on the blog, but a long time ago, back when the internet was truly in its infancy, I stated a stock market website that essentially met the exact definition of a "blog" even though nobody was using that word back then. This was the mid 1990s, when other than maybe by a couple of freaky guys wearing black nail polish and spiky hair while living in their mommy's basement hacking away on the newly-discovered internet (thank you, Al Gore), today's "blogs" were simply referred to as "websites", or maybe just "URLs" by the dorks of the world. But that's what I had -- a stock marker blog. I kept it going, updating daily, for several years. I even turned it into a nice little side business, selling some regular financial information and predictions for a monthly subscription. I had a credit card machine, a merchant account with a local bank in southern New Jersey, the whole kit and caboodle.

But that all ran its course. After maybe 6 or 7 years of regular updating and provision of financial information, the grind eventually took its toll. Sometime in 2004, I stopped updating that site, and I don't foresee myself reopening that part of my life anytime soon. Don't get me wrong -- I still love the stock market, I still follow it like a hawk every single day of my life, and I'm sure I always will just like I always have since I was a kid. But having to follow things closely every single day, having to make picks and predictions for paying customers day in and day out, and just generally being subject to accusations of being wrong, being an idiot, having my head up my ass, etc., it really turned into a serious drag after a while. Given that investing directly impacts people's money, I found after several years, after weathering the dot-com bust of the early 2000s, and everything else in between, that I just didn't want to subject myself to that kind of public scrutiny anymore, so I stopped it. And as I said, I haven't looked back on that decision at all, despite those couple of months in late 2008 when all I could think about was the market, the financial sector, and the Wall Street engine that completely and totally makes the city where I live go. And to this day, even though I have a lot to say in my personal life about the stock market almost all the time, I try generally to keep that out of what I write about here, preferring to limit my opportunities for public embarrassment for my predictions to areas like football games, baseball over-unders, things like that.

All that said, this story has really got me chuckling today. GM's new IPO has been expanded by 31%, huh? Due to extensive investor demand, you say? Oh, and this move just happens to decrease the U.S. Treasury's stake in the new GM from 61% to 26%, as most of the additional shares being offered will come straight out of the government's stake. That is just so convenient, isn't it?

One thing people don't know is that the first step to being a smart, successful investor is always going to be using your common sense. I'm not saying that any untrained, inexperienced person can use their god-given brains and become a millionaire by speculating in metals, coffee beans and index futures -- far from it, of course -- but at the same time, I've always counseled anyone who has asked me that, if you don't understand what a company or an individual investment really is, how it makes its money, and certainly if you haven't even got a basic understanding of the financials and the relative valuation of a stock, then you have no business investing in it. This isn't the kind of thing that you need some kind of a finance degree to do either -- but I always have to chuckle when people complain about losing money in, say, some biotechnology stock, which they bought at $40 a share and now it's at $3 a share, when the company never had any earnings (or any real prospects for earnings) at any point during the time they've owned the stock. Only a fool puts his money into a company without having at least a basic knowledge of what the company does, how they make their money, and what level of sales the company has generally in comparison to its valuation in the market. I mean, if you invest in a company with $10 million a year in revenues, when that company is currently valued at $5 billion in the marketplace, without some very clear reason why you think the gap between those two numbers will narrow significantly in the near term, then you're just asking to be separated from your money.

So about GM. Remember, this is the company that lost market share for its cars basically every year from 1959 through their bankruptcy in 2009. Every. Single. Year. As a general statement, the company hasn't been responsive to the needs and desires of American car buyers -- for generations now, mind you -- and they still have the most bloated, overextended distribution network in the modern car-selling world. In the end they didn't close nearly as many of their dealerships as was originally reported they were going to have to close, and as such the new company will still have something like three times as many dealerships in their distribution, sales and service network as their profitable foreign competitors in the U.S. They were able to renegotiate some of their ridiculously over-fluffy benefits for current and past employees with the UAW, but again not nearly as much as was agreed they needed to renegotiate back when the bankruptcy was imminent a year ago. And most of all, what changes has the company made as far as the cars they are going to produce, both in terms of selection and quality? Have you heard of any substantive changes on this point? Me either.

The new company is basically a slightly-better-but-still-generally-all-the-same-problems General Motors. I couldn't help but break a smile when I even saw they were emerging from bankruptcy and heading for such a large IPO, and frankly I can't help but laugh every time I read anybody talking about what a good buy the new GM stock will be. As the company prepares for potentially the largest IPO in human history, the government now wants investors to believe that this thing is just so oversubscribed, that there is just so incredibly much demand for shares in the new General Motors, that they are having to increase the number of shares offered by a whopping 31%, something I'm not sure I can recall happening in any IPO in my memory. And this huge increase in shares will just happen to bail out the government to a significant degree of the absolutely, unprecedentedly massive share it recently took in the company in bailing them out a year ago?

Come on. You don't have to be trained or experienced in finance in order to see what is going on here. If you simply refuse to put your money into something whenever you do not have a clear sense of the value, of where the impetus is going to come from for a company to grow and a stock to move higher over time, you'll find yourself consistently not on the losing side of trades that never had a chance to make it in the first place.

Dow 10k Re-Re-Redux

With the Dow Jones Industrials Average making its triumphant run to its first close back above the psychologically key 10,000 mark as of Wednesday's close, I find myself taking stock (pun intended) of where we're at, how far we fell and how ferociously we have come back. But despite the huge losses of 2008 and 2009 in the major U.S. indices, and despite the massive 50-60% rally across the board since the ridiculous March 2009 lows, I keep coming back to that same damned theory that I've written about before, something I myself first theorized way back at the end of the 1990s when the Dow first flirted with the mythical five figure level -- that key psychological levels through history in the market have always taken many years -- a generation or so, typically -- from the first time we cross those points on the upside, to the last time we cross them before moving well beyond that level never to touch it again.

I've written about this theory several times before here over the past year, but every time we cross back over the 10k mark on the Dow -- either on the upside or the downside -- I find myself feeling that deja vu of having seen this level many times before, and my resolve and belief in the correctness of that long-term Dow theory strengthens somewhat. For many of you out there, the horrific plunge in the market over the past year might have forced you to pay more attention to things like the Dow Industrials, the Nasdaq, and even your specific portfolio based on what was going on as you actually felt your net worth shrinking by what seemed like leaps and bounds, some of you perhaps for the first time in your lives. So, the Dow being at 10,000 again might seem like a major move to some, but in reality the Dow has crossed back and forth over this mark more than a handful of times since first touching it back in late March 1999. In fact, the Dow has crossed above 10,000 on a closing basis 26 separate times in the past ten years, and that doesn't even come close to capturing how many times the index crossed 10k during the trading days themselves. Following is a chart from CNBC of all of those 26 occasions where the Dow closed on either side of 10,000 on two consecutive trading days:

Dow 10,000 Crossover History

So you can see, the world's most closely-watched stock index is no stranger to clawing its way up to and over the 10,000 mark. And, if you look at that chart, you can see that doing so does not mean a whole lot on a medium-term basis as far as the index holding that level.

The first time 10k was hit was back in March 1999, and it took only about a week bouncing above and below 10k before we moved comfortably above on the way to 11,000 by April of that year, and roughly 11,500 by October 1999 which proved to be a near-term top for the markets. By February 2000, you can see by the chart on the right we closed back below 10k for the first time in close to a year, where we dilly-dallied for another couple of weeks before again remaining above 10k for the next several months. We closed below 10k for one day on October 18, 2000 but then spent until the following March again mapping out ground back in the 10-11k range. After just a few days in March 2001 below 10k, we jumped back above until that summer when the fallout from the internet bubble bursting combined with 9-11 to send the Dow back into the 8000s on a closing basis. Investors rallied to the buy side smartly as the nation recovered from the 9-11 disaster, sending the Dow back over 10k in December 2001, but unfortunately the economic fallout from the terror attacks cast a pallor over the market and kept the Dow well below the 10k level for most of 2002 and 2003 despite six separate successful closes above the mark at various times over this period. 2004 was a year where the market tried to find its footing as the economy began growing again, and after flirting with 10k over and over during the year, finally on October 27, 2004 the market moved back above 10k for a sustained period, one which many thought was the last they would ever see of Dow 10k as the index rallied strongly for four years, topping out in October 2007 at over 14,100. But the credit crunch and then the events in the banking sector late in 2008 made Dow 10k a reality all over again, taking the index as low as 6500 and change in March 2009 before this massive rally has once again lifted us to a close back above the 10k level here on October 14, 2009.

What does all this mean? For one thing, don't expect to be done with Dow 10k over the near-term just yet. A quick look at the above chart shows that, the first time we hit 10k in 1999, it took 3 crosses back and forth on a closing basis for the index to finally sustain a move above the five-figure mark. In 2000 there were another four Dow 10k crossovers, and six more in 2001. Five more times the Dow passed over the 10k level in 2002, finally crossing back to the upside in 2003, and then bouncing again around 10k six separate times in 2004 before embarking on the mid 2000's rally that eventually led to 2007's historic Dow top.

So, in the near term, it is probably reasonable to expect at least a few closes below 10k before investors decide if this rally is going to continue to grow -- and then stick -- or if it's time to take a breather after the most ferocious short-term rally in U.S. stock prices since the Great Depression. And, more importantly, on a long-term basis we are also probably not out of the woods yet. Recall from earlier posts here that Dow 100 took about 26 years from first touch to last touch, and Dow 1000 similarly took over 20 years from first to last touch. If we follow that same pattern, then it's only now been 10 1/2 years since we first touched Dow 10,000 back in March 1999, so we could be only halfway to the point where we are finally above and done with 10k once and for all.

Dow 9917

You heard it here first -- Wednesday afternoon could have been it.

About a month ago, I posted here in response to the number of comments I was hearing about how ridiculous the huge recovery in U.S. stock prices had gotten, as at the time the Dow Industrials had jumped from a low of 6600 and change back in March of this year to around 9100. At the time I posted a largely contrarian view, that the Dow was likely in for another 10-15% rise to right up near 10,000, before I figured it would be destined take a seat after a very likely bounce off of the key 10k level.

Well like I said, Wednesday afternoon, just before 3pm, might just have been the top:



Although the market was weakish in the morning, come afternoon time and word at 2:15pm that the Fed plans to keep interest rates effectively down at zero for the foreseeable future, and the buyers started emerging from the woodwork in typical quick-reaction to a seemingly favorable Fed decision. Within half an hour or so after word from the Fed, stocks were at the highs of the day, and the Dow Industrials crossed the 9900 mark for the first time since the financial meltdown more than a year ago now, briefly touching the 9917 mark for less than a single percent below Dow 10k.

But then everything just fell apart. Suddenly it wasn't interest rates remaining near zero that the traders were whispering about. After a short while to reflect on the Fed's decision, one tidbit started to stand out more and more -- the Fed's concurrent announcement that it would ramp up the slowdown of some of its trillion-dollars-plus of purchases of mortgage-backed securities. All of a sudden, low interest rates were a nice thing, but the reality of withdrawal of the historically extraordinary support the Fed has given the U.S. economy over the past year set in, and the last hour or so of trading was all sell sell sell. By the time the smoke had cleared at 4pm on Wall Street, the DJIA had plunged 169 points in an hour from its high of 9917, closing the day at 9748 for the first abrupt late-day sell reversal we've seen in the market in quite some time.

I said it before and I'll say it again -- I think this market's been itching to go to Dow 10,000 for many months, but I don't feel right now like investors' still-scarred psyches can handle a sustained push into five digits on the world's most-watched blue-chip index. I would not be remotely surprised if this is as high as the market gets for some time now, and that over the next little while we could very well be heading lower and not higher for the first time in six months. Although I still think it's quite clear that the economy is nowhere near as bad as the worst pessimists out there had been fearing now a year after the global financial implosion, it's also equally clear that things are nowhere remotely close to getting back where they were a year or two ago either. 3.5 million incremental jobs have been lost in the last year just in the U.S. alone, and entire pockets of businesses, mostly related to securitization, mortgages, and loan repurchasing, have entirely disappeared, perhaps forever. To suggest that the market can or should keep running up from here back to the old highs is, at least to this market-weary investor, not in keeping with reality. And always staying in touch with reality is one of my basic precepts to smart investing.

So I'm out there looking for put options today on some bad companies whose stocks have rallied hugely with the general flow over the past six months. I really love the stocks I've picked up at ridiculous firesale prices over the past year, even at today's fluffed-up prices after a 60% rally in half a year, but there's no reason for me to sit just idly by and watch my portfolio slough off 20% of its value during a correction that I have felt very confident was coming at more or less exactly the point that the market reversed at yesterday afternoon.

To me, today is another one of those days like when I was out here talking about UYG at $1.50 back in March ($6.33 yesterday afternoon):

It's time to put my money where my mouth is.

What's Up With the Market?

I probably get about three or four emails or girly chats a week from people asking me what I think about the stock market these days. Everywhere I go there is somebody who has talked the market with me before, and I'm constantly getting asked for my thoughts. Last year as things crumbled to the ground, of course, this was an extremely hot topic, and frankly I made most of my thoughts known here as far as wanting to buy in when stocks got as low as they did. Well, now as the market has just rallied stronger than anybody could have ever believed over the past few months -- up around 45% from the March lows on the S&P 500 -- the interest level seems to be rising once again, as more and more people become dismayed with the degree of this latest surge after last year's tumultuous tumble.

The most common thing I hear, to be perfectly honest, is "When do you think the rally will crumble?" In fact, probably at least half of the people I talk to regularly about the stock market seem to believe that this latest rally is way overdone, and that people are just being silly to be pushing up stock prices this much, this fast, they're creating another bubble, yadda yadda yadda. The general consensus seems to be that those who are buying into this particular rally are surely destined to get their comeuppance soon enough in the form of a vicious bear market to eradicate most or all of their gains all based on bubble valuations and blind-eye gains.

Well, I'm here to tell you that I don't agree. At least not yet. There are a lot of reasons why.

First and foremost, Dow 9,200 is not ridiculously high. It's just not. Although ultimately one can always classify this statement as just an opinion, it's really not something that people who truly understand the market and historical valuations would ever disagree with. I don't care how low the market went late last year, again in January, and finally again in March earlier this year, but with where stock prices had been trading as recently as a couple, few years ago, when I look at Dow 9,200 -- and especially when I look at the individual stock prices that go into creating a level of 9200 for the 30 DJIA stocks -- I don't see a bunch of overinflated, fluffy stocks with plenty of room to sell them down hard. At Dow 14,000 two years ago, maybe. But at Dow 9,200, stocks are still probably closer to looking cheap than to looking expensive.

Now don't take that last statement too far -- I don't really mean to be saying that I'm some kind of huge bull on the short-term of the U.S. stock markets here at Dow 9,200. But I'm definitely not in the camp of those who scoff every day when the market is up again these days -- and I know there are literally millions of you out there -- thinking how speculatively-valued all the big stocks in the market are becoming again. To put it another way -- and anybody who knows me and chatted with me regularly over the past several months heard it from me live when it was happening -- but it was Dow 6,547 back on March 9, 2009 that I thought looked truly silly. I mean, that's the shit that was stupid, not Dow 9,200. And I'm someone who's followed the market like a hawk for almost 25 years at this point, since back when the Dow was in the 1000's, so there's more than a little perspective behind that statement. That's why I was right here, for example, on March 13, extolling the virtues of buying the Proshares 2x-leveraged Long Financials ETF which trades under the stock symbol UYG, which had touched $1.37 a share a couple of days earlier (as I type this, UYG is up around 330% since that price) -- because everywhere I looked back at Dow 6,500, all I saw were obvious buys. Absolute, raging, screaming buys. GE was at friggin $6.60 for crying out loud (Warren Buffet bought $5 billion of preferred stock earlier with the GE common trading at around $21 a share), Amazon was below $40, Apple was below $80, oil stocks were cheap, gold was cheap, everything was effing cheap as hell.

Despite where we were just five short months ago now, try as I might I just cannot see stock prices today as looking particularly expensive. With the Dow already having rallied back from 6,500 to 9,200, I therefore do not agree with the growing consensus that things have moved too far and we cannot go much higher. In fact, for many reasons I would guess at this point that it's a pretty good bet that we will rally a bit more from here. For starters, the economy clearly has bottomed. A couple of months ago at this point. Sure, the employment situation is still downright frightening right now in the U.S., but employment is always a lagging indicator, and all the other figures show that things fell off a cliff late in 2008, stayed that way in the first quarter of 2009, but in the second quarter -- which ended on June 30 -- the rate of decline in the national GDP slowed to just over 1%. And things don't seem any worse right now here in early August than they did over the past few months -- if anything, the beginning of Q2 (April) was probably still feeling some residual slowness after the March stock market lows, while Q3 is likely to begin at around the same pace as the improved growth from the final months of Q2 and stronger than the previous quarter started, so Q3 GDP can hopefully be another positive sign to look forward to.

Moreover, those jobs figures are likely to begin improving any month now, if you assume for example that the "bottom" for the economy was the same as with the stock market and just call it March of this year. That leaves April, May, June, July and now into August that employers have had to figure out that the economy is currently in bounceback mode and start adjusting up hiring or at least adjusting down the firing. That means that this week, when the July jobs number comes out, we will get our first look at how employers acted with now four full months of data on the economic rebound in order to plan their hiring strategies. If the July numbers are not better than expected -- and sadly I am talking about a month with under 300,000 jobs lost or so -- then the August and September numbers are very likely to be positive surprises. And the fact that we probably have another couple of months of positive reports in some significant economic figures coming right down the pike is only going to help bolster the whole recovery theme further. And keep in mind all that "stimulus" spending that Barack Obama and the Congress pushed through earlier this year, which represents hundreds of millions of dollars a year of "synthetic", mint-financed spending which will no doubt also have a measurable effect on the economy as a whole, both directly and indirectly, for a long time to come.

On top of the economic influence on the markets, psychology probably plays at least an equally important factor, and again I think the psychology of the market right now is such that we are still -- at the moment of writing this at least -- in rally mode. For starters, it has been a common technical indicator over time that in a bounceback from a sharp rally or a sharp selloff, it is common for a major index to retrace close to 50% of its overall previous change as it adjusts to the new changed level. For example, in this case the Dow fell from 14,100 in October 2007 to 6,600 in March 2009. An exact 50% retracement of that often dizzying 7,500-point drop would bring the Dow back up to 10,300. That leaves around another 12-13% to go still from current prices. Similarly, the S&P 500 closed at 676 and change on March 9 of this year, after having closed as high as 1,565 on October 9, 2007. A 50% retracement there would bring the S&P 500 back up to 1120, while the index currently sits only at 987. That leaves another 13% there as well to rise, if the markets are to follow the common practice of recovering half of the losses before the next leg staying in the bottom half of the recent trading range.

One other factor I just can't keep coming back to is Dow 10,000. I know it's only psychology, but I'm telling you, things like the Dow crossing back over the 10k mark have a very meaningful effect on a huge swath of investors' mindsets, both in this country, and among foreign investors in U.S. markets, where things like superstition, lucky numbers, etc. are at least as popular as they are in America. And in this case, I simply cannot envision Dow 10,000 again without an accompanying selloff in stock prices. I just can't picture it any other way in my mind, much as I would like to. I think we could easily rally up to or near 10,000 on the Dow -- which would be roughly consistent with that 50% retracement rule that often applies after big inflection points in the market's history -- and then experience quite a bit of pushback from individuals and institutions following the "won't get burned again" mentality once the Dow claws its way back up to five figures. But part of believing that a retest of the 10,000 will likely fail, at least at first, is believing that the Dow could find its way back up to that point to begin with. The psychology of the market is such that it may want to see a re-test, and may subtly make it happen by rallying things up to that point. It has often been a quick and easy push for the last several percent on the way to a significant re-test at a major high- or low-water mark in the major indices, something that's been happening in the stock market since time immemorial. I've seen it happen a thousand times before, and I'll see it a thousand times again. This is just how the market works sometimes, as any market pro knows.

Healthcare has been sufficiently whittled down from the ridiculous overspending that is becoming this president's main theme so far. The bank bailouts -- unpalatable on every level as they are -- appear to have worked, in that the mainstays of the industry have been kept afloat, crisis averted. The economy bottomed months ago, and all signs point to unemployment moderating in coming months as employers realize that the sky, indeed, is not falling as many had predicted. So far the long-term fallout from the financial meltdown has been, while quite significant, not the catastrophic event for all of America that many had feared just a few months ago. And Dow 9,200 is just not that expensive, not on any scale used by normal human beings. There is room to grow a bit more from here, and a 10-15% rally is never anything to sneeze at. I'm still looking to buy whenever a particular sector or stock I like gets cheap, having rotated into some oil stocks a couple of months ago when crude prices fell to $40 a barrel, and I will continue to do so at it seems appropriate given the current market action. But as we get above the 9,500 level or so on the Dow, I will be starting to look for some stocks that are approaching long-term technical tops on their charts, and/or shares in companies that appear to be running into growth problems or funding issues for whatever reason. Those are the places I will want to be buying some put options to hopefully profit from everyone else selling off when the Dow gets close to the key 10,000 mark.

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.