Daily Investment Interpretations

November 5, 2008

2008-11-5:  The Lord giveth and The Lord taketh away. And The Lord just tooketh. The Dow plummeted nearly 500 points (486.01 points, to put a finer point on it) (5.05%) today to 9,139.27. Gee, whillikers, Sandy! What hath God wrought? Are they that disappointed about a Barack Obama presidency? Not according to Mark Hulbert: What does Wall Street think of an Obama presidency? Mark Hulbert concludes that Wall Street has been indifferent to who was ahead or behind in this Presidential sweepstakes. The reason given for today's retreat is a renewed awareness of the economic Grinch that threatens to steal Christmas.
    The NASDAQ shed 98.48 points (%) to end at 1,681.64, and the S&P divested itself of 52.98 (%) to close at 952.77. Oil was essentially unchanged; gold lost $14.90 to $742.40. The volatility index (VIX) jumped to 54.56.
    Many pundits are calling for a tradable year-end rally. "Tradable" means that professional traders might want to ride it up to its zenith and then short the market as it tumbles back down later this year or early next year. But one fact that I think we might want to bear in mind is that the stock market is a zero-sum game... one person's gain is another person's loss... and the key players in this game are the ones who manage the most money--in other words, professional investors. This means that the stock market will, by definition, behave in ways that confound the expectations of professional investors!!! The reason is that if there are any profitable trading patterns discernible by professional traders, including artificially intelligent trading programs, a lot of other professional traders will also discern the patterns and will start utilizing them to try to make money. But soon, a sufficient number of big-money players will be betting on the same side of a trade that the odds of beating the market will go below 50-50, and they'll begin losing money. Applying that to our year-end rally, if very many investors come to expect it, it probably won't happen, or if it does happen, the market may be so volatile and treacherous that it won't be tradable by reasonable traders.
    I'm trying to write up something titled, "Should I Buy Into This Stock Market Rally?" The short answer is: probably not, but there may be some useful information and strategy that would apply to such a decision. But it's hard to find time to write all this material. Tonight, for example, Amber and I have had to help Dora, Boots, Ickey the Iguana, and the baby jaguar rescue Benny, the Blue Cow, from the Gooey Geyser before the Gooey Geyser went FERFOOFLE! (We made it in the very nick of time.) However, I would reiterate: things aren't as bad as they may seem, nor are your present losses irreversible (unless you took your money out and spent it). And the talk about "it may be 2020 or 2030 before the stock market returns to its 2007 high": that might or might not be true, but that doesn't mean that you can't soon recoup your losses a lot sooner than that. I have every confidence that the No-Load Fund X mutual funds such as UNBOX and FUNDX, which are down at about half their peak values, will continue over the long haul to crank out the 15%-per-year to 18%-per-year average long-term rates of return of the No-Load Fund X newsletter even through a secular bear market. Last October, Janet Brown's No-Load Fund X newsletter had averaged a 19.2%-per-year average rate of return since its inception in 1970. That record included 12 years of the 16-year, 1966-to-1982 super-bear market. Similarly, the Prudent Speculator newsletter at its peak last October had cranked out a 19%-per-year average rate of return since it opened its doors in 1980. The corresponding mutual fund, the Al Frank Fund, VALUX, hasn't been around that long, but it was doing very well until last winter. (One way to play this recovery would be to switch to these funds as they come back up.)