Thursday, April 02, 2009

Message for those...Stuck (letter to investors)

I hate speeches, but if you have been stuck long, a member of that group that held held held through each successive wave of market hell when we were slicing downward, then now is an opportune time to begin reducing exposure with a bit of sunshine and grace.

This is not advice to any individual (you for instance), since every case is unique and suitable only to oneself. However, in a bear market rally it is when things look most promising that downtrends tend to resume.

Today the buzz is almost giddy, the faces are well too hopeful and CNBC heads have shifted from questioning the bear-market rally to asking if this is a new bull market (does your dog bite?).

Think back long ago to those feelings you held a full month ago, at the beginning of March.

While I don't like calls on the future (I'm weird that way), I do study the past. If this is as serious a bear market as it has flashed thus far, then what I can say is prices should be lower 15 months from now, and the likelihood of a secular bull market beginning instead is low low low.

Much more likely: right now the patient is pumped up with adrenaline, he is up and moving about and we are all looking and saying hey, he looks pretty good.

When the injections wear off, the market should re-grind lower (or worse), often with sharp counter rallies, but always with a resumption to the ever-seeming grind lower. Then, after investors have had more than they can stand, that is when market behavior becomes susceptible to panic; all that is needed then is a fresh negative catalyst.

So while I am not advising you (read disclaimer on right, talk to your attorney, preacher and tax adviser and forget you ever read this nonsense), I will let you know that I am speaking with people I know and care about personally (sorry Fred) and suggesting they consider having to re-endure further downward hell following the feelings of promise they now hold. A slow and steady regression (which is not necessarily going to take place immediately) might erode their confidence and in the end they are selling in a panic because of a new, unforeseen catalyst some months from now.

It's fairly simple: On the one hand, investors risk missing out on participating in a new bull market. On the other hand, they risk getting ground-down slowly, over way too long a period of time their lives are accustomed to and then having to act like heroes to hold forever or else sell at much lower levels because there just doesn't seem to be any good reasons to be in equities.

Good luck either way. If you scale out here in the bright sunshine then don't credit or blame me later (it's entirely your problem). And if you sell 36 months from now because there is no reason to be in equities, then I intend to take your shares (thanks Fred).

If you're not planning to buy at the World's end, then I don't know why you wouldn't begin selling now.


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