WASHINGTON, February 7, 2018: The good news Tuesday was that Mr Market took his second very random walk this week, this time with a far better outcome. Major stock averages ended up reclaiming about 50 percent of what they lost in Monday’s catastrophic decline. What a difference a day makes.
The bad news is that we have no idea where Mr Market will be headed during his Wednesday random walk. As of the noon hour today, the DJIA is up 323.37 points, the S&P 500 is gaining 24.70 and the NASDAQ is ahead by 30.01. Those are 1.26, 0.93 and 0.43 gains respectively. But as we’ve learned (or re-learned) over the past 5 trading days or so, trading each day ain’t over ‘til it’s over as our favorite sage, Yogi Berra, once observed.
Volatility – the major villain in the wild moves made by Mr Market over the last few days – seems to be moderating a bit Wednesday, although we won’t have final figures on that measure until after today’s close. But all U.S. markets, with nearly zero exceptions, were badly damaged over the last few nerve wracking days. It will take some time for stocks to settle down and rebuild themselves into trading patterns that approach normalcy in our abnormal times.
Since roughly last Thursday and through this afternoon thus far, I’ve been gritting my teeth and largely holding fast with my large and small portfolios of stocks, holding out against the confusion that Mr Market has clearly been demonstrating of late. I’ve only trimmed a few real estate-owning REITs (now their own S&P investment sector) that seem doomed to a downward spiral until investors decide to quit freaking out over interest rate increases.
When a stock or group of stocks turns decisively against you, you have to get out, given that the only alternative is to lose more and more money every day if you hold onto this stuff. That’s why we dumped these for small losses. We may re-enter these positions later, when investors – and Mr Market – finally find something new to hate.
On the other hand, holding my nose and taking Maalox intravenously, I upped positions in Apple (symbol: AAPL), JP Morgan Chase (JPM), Bank of America (BAC) and Marathon Petroleum (MPC) during the late stages of Monday’s horrifying waterfall decline.
I don’t much like investing guru Warren Buffett’s stalwart support for America’s socialist party. But his success has largely been due to his adherence to a couple of simple rules. The one I’m thinking about here is his observation that savvy investors buy good quality stocks hand over fist “when blood is running in the streets.” That’s a metaphor, of course, but you get the picture. It’s a good way to stay in sync with that always-puckish, often peevish Mr. Market.
The last time I did this big time was in March, 2009 when I bought a boatload of decent, investment quality bonds that were getting eviscerated in that month’s massive, no, epic, selling panic. I got them all for deep, deep discounts.
Sure enough, just a few years later, after collecting outsized interest on those bonds (due to these deep-discount purchases), they were called (redeemed) ahead of schedule at full value, creating that rare situation where a small investor can reap substantial capital gains on bonds, given their earlier deep discount. Meanwhile, while I waited, I still faithfully received those twice-yearly interest checks. One almost never makes capital gains of this size on bonds, which, in normal times, are inherently boring.
The stock market action last Friday and again this week on Monday wasn’t nearly as frightening as it was back in March, 2009, but the streets were pretty bloody. That’s why I used the ridiculous discounts offered on stocks I already owned to drastically average-down on the cost of these holdings by buying more shares at those newly pancaked prices, knowing some kind of snapback rally was imminent.
It was. Given market vagaries, I’m still down on these stocks. But my breakeven point is much lower now, as will be the point where I regain green ink status in these shares.
I did the same thing by purchasing incremental amounts of shares in a selection of Schwab ETFs that I own, as I build larger and larger positions in them. My favored sectors currently have been growth (SCHG), Large Cap (SCHX), and foreign stock holdings (FNDF). Symbols are all Schwab funds, which I can trade in any amount without commission.
It’s more than likely that your brokerage now offers similar ETFs and a similar deal. FNDF, by the way, is one of Schwab’s ETFs that uses less-common “smart beta” strategies in its holdings and is thus less volatile in markets like the current one.
As I’ve hinted in earlier columns, U.S. markets are increasingly being gamed by big funds, traders, HFTs and other computerized miscreants, making it far more difficult for small investors like you and me to win consistently by picking individual stocks.
For this reason, I’m slowly transitioning more and more of the money in my portfolios to ETFs to lessen, at least to some degree, the kind of whipsawing that you, I and everyone else have endured over the past week as wealthy morons and their high-speed computers ramped up their nasty little games, hurting everyone’s savings and retirement portfolios in the process.