Why Are You Having Such A Bad Year

Based on the market action of the last year, most investors probably would've been better off doing nothing.  Bull and bear markets are generally defined by whether or not the SP500 is trading above or below its 200-day moving average.  Over the last year, the SP500 has vacillated above and below the average for short periods without a sustained trend.

While the SP500 has held up relatively well due to a few mega-cap names holding up the index, the majority of stocks have been in a bear market for most of the year.

By comparing the SP500 and Nasdaq 100 to their equal weight counterparts, you can notice the enormous impact a select few names have had on the two indices.

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Typically, this type of bearish action that we are witnessing on most individual stocks trickles down to the actual indices, and the indices might catch-up to the stocks. However, one must keep an open mind that maybe individual stocks may start to act better and the market's breadth will broaden.  As of right now I'm seeing subtle improvement on some individual names.

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Read This Before You Call It Quits

25 Years Later We Are Still Complaining About The Same Things

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Read This Before You Call It Quits

Before you jump the gun and call it quits on the market based on a tough week I want you to know a few things;

1.  Since 1980 the average intra-year decline in the SP500 has been roughly 14%.  26 out those 34 years despite the average intra-year drop the market closed positive, 76% of the time.  That does not mean that the declines were not painful; it's just a reminder that the market goes UP and DOWN, not up OR down.  And, draw-downs are unavoidable, there is no sense in trying to avoid what cannot be avoided. 

2.  Its never been wise to be a bear for too long.  In the last 89 years, stocks closed down 20% or more six times (7%).  35 out of the last 89 years stocks delivered 20%+ returns, (39%).  Try to minimize your losses but never forget that the real game is played on the long side. 

3. The SP500 annualized gain is 10%; that doesn’t mean that you will make 10% every year, you are going to have good years, bad years, great years, and awful years.

4. You will have reasons why should get out of the market; they will always be more enticing, believable, and persuasive than the reason you should stay in, especially if you are still licking your wounds from 2007.

Feel free to plot the reasons above to the SP500 chart below.

5.  Realize that there is a time to be aggressive and a time to just move a couple of pawns around just get a feel for the environment.

6.  Stay thirsty, don’t disengage. 

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25 Years Later We Are Still Complaining About The Same Things

25 plus years later we are still complaining about the same things.  The more things change, the more they stay the same.  If you have kept an eye on the financial blogosphere you have probably read about; the massive buybacks corporations are doing due to all the free money, the underperformance of hedge funds, and the influx of cash moving into passive strategies. Below are excerpts from a book written 25 years ago.

"The rotund and owlish seventy-five-year-old money manager's worries are legion: the horrendous budget deficit, the competitive failings of U.S. business, deficient ethics, the undisciplined stock-buying spree."--Every time a major corporation misses their quarterly numbers they immediately announce a buyback.

"Wright Investors' is typical of a majority of U.S. money managers who have failed to match the performance of the major stock market indexes during the five-year bull market."--We hear about this every day, outperformance by managers comes for the most part in down years.

"Inevitably the competition among the nation's more than 1,000 money management concerns came from investment performance measured not from decade to decade or year to year, but from quarter to quarter."  This was recently discussed by Carl Ichan.  With social media and up to the second everything, investors now have the ability to become even worse investors quicker by chasing what has been hot and getting rid of what has not.

"Institutional clients began to resent the fees they were paying to their money managers, and indexing began to appeal as a way to cut investment costs."--Passive investing, robo advisers.

"As the popularity of index fund grew, so did trading in the same big blue-chip stocks that account for all or most of the weight of the most popular market measures among index fund builders: the S&P500, The S&P100, and the American Stock Exchange's twenty-stock Major Market Index (MMI), which includes seventeen stocks from the Dow." --All we hear nowadays is how only a few mega-caps are lifting the averages, FANG.

So there you have it, the popular topics of 25 years ago are still popular today, what's new?

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The Extremist

The above quote from Sean McLauglin is very true, all you have to do is read any of the market wizards books to agree.  You had macro investors, value investors, technical traders, etc..; Bruce Kovner, Jim Rogers, Mark Weinstein. Today we have many extremists in the investing world; we have the extreme fundamentalist, the extreme technician, the extreme passive investor and the extreme active investor.  What dictates what is the right way or wrong way of investing/trading is your P&L.  I believe a hybrid approach triumphs all.

There is no doubt that in order for a stock to make a multi-year run it has to have a story, strong earnings, sales growth etc…But sometimes a stock can get cut in half before the next 10-Q and 10-K comes out, look at the oil names recently, sometimes a stock can double before the next 10-Q.  

Technicals will many times keep you from owning a great company, with great numbers, just because it broke some trend-line that you believe is important or because it's below some magical moving average.  Other times it will take you out of an overly loved stock that gets cut in half before the fundamentalists get a chance to read the latest filings.

Pick your poison.  What’s important is to know what works for you and what works within your time-frame.  If you are a 10-Q, 10-K reader then your time frame is at a minimum one-quarter, you should probably not sell a stock based on the price action if you bought it based on its previous 10q.  You must first read the updated 10-Q or 10-K, and then you have to come to the conclusion if whatever changed is a one-off event. Tough decision.

If your time frame is less than a quarter and even up to a year then earnings, sales, growth are for the most part irrelevant, if you think otherwise just look at the biggest winners every month.  

Here is what Kyle Korver the NBA’S best 3 point shooter had to say about developing his shot. “I think the secret to shooting is finding a shot you can make exactly the same every single time and then do it a whole lot. There’s no secret potion to it all. You just gotta find something, however you are, like, whatever feels good to you, but shoot it so you can make it the exact same every single time. The exact same. Like, a little bit off can change a lot. So you focus on trying to make it the exact same, and over time hopefully you become a good shooter.”  In other words—DO WHAT WORKS FOR YOU.

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Focus On What You Can Control

• You can control what stock to buy.
• You can control how much money you put behind the idea.
• You can control which markets you trade in.
• You can control how much you are willing to risk per trade. 
• You can control what type of stocks you buy, big caps, only small caps, only over $20, only under $10, etc.,
• You can control what kind of set ups you buy.
• You can control when you get in or out, barring a halt.
• You can control when to trade or when not to trade.
• You can’t control the outcome of the trade.
• You can’t control how the market will react to the news.

Don't fret over what you can’t control, shake it off, once you put the trade in what the market decides to do is out of your control. 

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Photo; guruseye

Brazil's Strong December Streak

Right around 3:40 pm news hit the wires that Brazil's President Dilma Rousseff will face impeachment proceedings. EWZ (Brazil Index Fund) spiked higher.  One can assume that based on the immediate reaction that the investment world views the news has positive.

The news comes at an interesting time, there has been some recent heavy call buying in EWZ, and the ETF has held above the low of 9/10/15 which was the day after Standard & Poors downgraded Brazil to junk.

But it gets better.  December by far has been the best month to own Brazil.  In the last 15 years EWZ in December has enjoyed an average gain of +5.14% with a win ratio of 80%, it's been up 12 out of the last 15 Decembers. --Source PastStat

While the impeachment process may take months, the possibility that it might happen could very well be enough to keep a constant bid under EWZ.

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