I read the headlines, I fill the gripping fear of the herd, I smell the panic and uncertainty daily in the markets as wild mood swings get sold off as quickly as they come where short term profit taking is the game of the moment short and long. It's as hard to buy right now as it was to sell when the DOW was hovering in the clouds of irrational exuberance only 13 months ago, most of the herd was looking for more because enough was not enough. The markets were suppose to keep going higher and the credit crisis was a temporary thing that was not that big of deal summer before last.
The herd sets around asking these days, where is the bottom, when is the bottom coming, when will it be safe to buy again? We hear the mass of the market selling, the opposite spectrum of 13 short months ago where buying strength was present, where it was easy to sell into that strength for profit, yet greed kept many hoping for more. Now, as I look at the markets I see the exact flip side. I see a state of mind that thinks there is no bottom in site, no hope for any further profit gains, the end of the world as we know it is here. The market is dying more each day on the buy side. We have been witness to spectacular spreads, volatility of this magnitude is quite rare as we ponder how long it will all last. Could it be tomorrow the markets finally bottom, could it be next week, will it be months, will it be years, decades, what does the future hold for us right now? It holds a level of uncertainty our generation has never faced.
We face problems in scope that the herd could not fathom 13 months ago. Take a look at all of Vanguard Funds in the link below.
A fund that is down 35 to 50% right now is going to do what from this point? Who knows? Will it go down another 30%? What if I buy that fund weekly getting cheaper shares each week and what if I compound my buying strength as it falls. Averaging down or dollar cost averaging and buying more shares as it falls, buying more stock at a greater discount at each leg down, buying more of the panic exponentially as it falls, not less. Is it not the same logic in reverse as shedding profits into buying strength as I preached 13 months ago? I was preaching here on this blog to shed profits off in layers at the very least while there was buying strength. I am now stating that the opposite is quite logical and quite the thing to be doing for the long term. Unless you are some super wizard market timer, a guru I once thought I was, but am truly not.
How do you beat the herd at this game? You do what most people can not do. They can not buy the fear of others. They can not buy when it is not popular. Those who follow herds get slaughtered who are at the end of the line of the herd, selling to late only to see the market reverse and go higher, or buying to high and to late only to see prices fall. It was extremely unpopular last year for me to declare our own generations depression was coming. It was an unthinkable concept at the time.
It is almost as unthinkable to venture out now to begin buying with so much worry, so much bad news out here in this spooky, stormy ocean of a market but I might add that this is the perfect time to buy when such extreme fear exists and the majority of the herd is watching from the sidelines, the shoreline, waiting for the all clear signal to dive back in long side.
I am NOT a market timer but I can wade through the odds and speculate enough to see discounts floating by me in this ocean. I can see a market that might just collapse further. I have a plan for that, it's called buying more when and if it happens. It's called playing with your chips in a wise manner. It's called timing in a way I guess, phasing into fear just as it was wise to phase out of greed. Why have I switched from shorting the markets to buying for the long term now? Because I can no longer predict with conviction the down side in this market. I have no clue as to how low it might go but I do know I can buy more cheap shares if it does go lower while and if it goes lower. I know the markets will not go to zero, well, the odds are against that insanity. I know I am getting discounted shares right now. I know I am buying others panic right now. I know I am buying when there is little buying strength. I know there will be buying strength some day I can sell into when the herd returns in mass, when they all feel like partying again and most people are feeling great about the markets going up. I know I will have a place to party as well. I know I can come to that party with my shares and sell to those party miesters like they were candy. I will have buyers some days who will gladly pay more than I am paying now.
Here is the main reason I am not moving my base back into the markets any time soon. I feel there is more selling on the way from 401K's. I feel the older generation is at maximum pain right now. I feel there is another leg down coming for the hard cases left, the ones who are still holding out hope for a return. There is no return or reverse in these markets until more people are shaken out and they sell in panic. A complete and utter redistribution of wealth of major magnitude. Those still holding huge sums in their retirement accounts will begin selling IMHO as the limits of their patients and emotions are pushed to the limits and they finally give up in mass. Stocks will get cheaper I think as the older generation with the most to lose capitulates and forms a huge bowl of buying support as shares fall in mass panic, forming a place for the smart money on the side lines to flood into once the weak break and sell to those on the sidelines with huge liquidity pools waiting to buy that fear.
The greatest opportunity will come when the fewest amount of people are capable of buying, that being a third of the people will not buy out of fear, another third will not have the money to buy and of the last third only half will have the guts to buy during max pain as the markets fall further. The minority with the most money will be buying from the majority who finally capitulate into the final fall.
The worse is yet to come when fewer are capable of buying the fear of others, when there exists so much fear most of us are too scared to buy the future because there will seem to be no future forever more. That is the day blue skies return to the markets. Behind the gloom of these dark days in the markets is a blue sky waiting to shine. Will you buy the panic, will you buy the doom that forms tomorrows blue sky? Not many can, not many will, it's to hard to buy when things are this gloomy and doomy. Some will and they will laugh when the sun shines upon the markets again some day over tomorrows horizon.
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