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March 10, 2009

Comments

Market timing is not for the 'average' investor, but trading is a game that can be won (i.e. Buffet until recently). Cramer is for those people. Who KNEW the market would fall from 14K to 6K? Buffet didn't. And Cramer is vilified for not knowing what nobody else did either? Sure he's supposed to be a pundit and one step ahead of the game, but he does not claim omniscience and admits his bad calls. Yet, his savvy and perspective helps traders make their decisions. They don't necessarily follow his every word. It's just grist for the mill. Stewart's a punk.

Condor, Buffet isn't a trader. Cramer is, though. Cramer believes that he knows where both individual stocks and the market as a whole are heading in the short term.

That's why Cramer screams "buy, buy, buy" or "sell, sell, sell." And why he is wrong so much of the time -- because nobody knows what will happen in the short term.

Here's a piece that describes Buffet's investing philosophy. He is worlds apart from Jim Cramer. Excerpt:
http://ezinearticles.com/?Warren-Buffet-is-Not-a-Day-Trader&id=1698169

"Warren Buffet may well be the world's greatest investor. He buys and sells businesses, and he uses the company's shares to buy himself part ownership of a business. But Buffet is not a trader, and his strategies for success are completely different from those that make money for day traders. He does not analyze market trends, looking for movements. Instead, he looks at a company's fundamentals and decides whether he thinks that company can grow over the long term. It's important to keep this distinction in mind if you want to make money in the market. A day trader may well admire Warren Buffet, but he will have to look elsewhere for a model."


Cramer is wrong sometimes and he is right sometimes. That is the traders' game... trading. All you have to do is be right a little more often than you are wrong and you have made money. Cramer does that.

As a commodity futures trader, I made on average about 15%. Many of my trades were losers, but I cut the losers fast and let the winners run with trailing stops. That's the game. Nobody know what's going to happen, but you can put the odds in your favor with skill.

I still say Stewart is a punk. Witty, but a punk. He'll kick you in the ballsack from behind and then take credit as if he was facing you straight on and be proud of it.

On the other hand, Brian, if you had gone to 100% cash a couple years ago when it looked like the market had gone up too far, and for no good reason, just like house prices went up too far for no good reason, you'd be 31% + better off than you are in the index fund.
But I agree with you on Cramer. I wonder if Condor has actually ever followed any of his advice. Stewart has made Cramer look like he just climbed out of the clown car at the circus and rightfully so. It's pretty hilarious for a comedian like Cramer to say Stewart is "just a comedian."

>> Who KNEW the market would fall from 14K to 6K?

Some people did: http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/TheMarketsWorstIsYetToCome.aspx

And yes I bailed at SP 500 = 1380 in Jan. 08.

Randy,

I agree. I invested, my sep-ira, starting 3.5 years ago in Fidelity Cash Reserves 100%. The remaining 5 mutual funds have tanked, some 42 per cent. They (mf) are just sitting there, maybe one day, shall regain some value.

Randy, Nw, and Roger... some people always will be able to guess where the market is heading, just by chance. Or nearly by chance. Consider coin-flipping. 50% chance of heads or tails coming up.

One flip, half of random guesses will be totally right. After two flips, one fourth (.5 X .5). After three flips, one eighth. After four flips, one sixteenth. After five flips, one out of 32.

The point is, even by throwing darts at a board divided equally into "buy" and "sell" zones, some people will end up with a winning investing strategy.

Some of those people then go on TV, or start newsletters, promoting their acumen. But it's a sham. By chance (or guesswork) they succeeded in predicting the market. But others would be foolish to believe that they can do this consistently. Research shows that it isn't possible for investors to beat the market through market timing.

So the argument "some people knew" doesn't hold water. Making a correct prediction doesn't equal knowing. It could be (and usually is, with the stock market) just a lucky guess.

The problem with going into cash is well known. You have to know when the market is about to go down, and then you have to know when the market is about to go up. This isn't possible to do consistently. Plus, most of the gains in the market come on just a few days in the year. Miss those days, and you've missed most the market's profit potential.

Further, for balanced investors like us there's a downside to being totally in cash. Cash pays crap these days. What, half a percent, one percent in money market funds? We own a balanced (both stocks and bonds) mutual fund that is yielding almost four percent currently. Even at a 40% higher net asset value, the yield still would be almost three percent.

So if that fund had been sold, our income stream would have been cut substantially. These days cash isn't really an option for income investors. Dividend paying stocks and bonds (especially corporate) are yielding quite a bit more.

Brian,
Exactly. For example, Abby Cohen was all the rage for awile because she had made some accurate market predictions and was thought to walk on water. Then she started to miss and now she's off the radar. Even Buffet has lost $25 billion. It's a crap shoot, but you can, with work, put the odds slightly in your favor.

Randy wonders if I have followed Cramer's track record. No. I have watched his show maybe ten times, but I never can get all the way through it. Too exhausting listening to him rant and rave. He's smart, but I never follow anyone's investment advice. I have found his observations helpful, however, in formulating my own decisions.

I like cash, metals and agriculturals right now and AAA tax free munis (not California).

Don't follow my advice.

I think Condor has the right line up except for AAA munies. What corrupt rating agency will rate them? What broke insurance company will step up? Who will bail out states and counties as their tax base disappears? The name of the game right now, IMO, is wealth preservation. Ending up with something as everything goes broke around us. Condor, you probably read Martin Armstrong. Note that he took a shot at munies last month here: http://www.contrahour.com/contrahour/martin-armstrong/
Brian: Dude, you've got to take a look at Chris Martinson's Crash Course http://www.chrismartenson.com/
crashcourse
This is a different situation. I hate the word "paradigm." But the paradigm has changed big time. "Balanced investor?"
Heck, you can't even be sure that you'll be able to get your funds out of a bank tomorrow. The FDIC is about broke too.
A balanced investor used to spread the risk between small and large caps or between stocks and bonds. Not too long ago a balanced investor spread his money into emerging markets. Tomorrow a balanced investor may be one with some land, a garden, a well, no debt, some bullion, some cash in a can buried in the back yard, a pantry full of food, a shotgun and lots of friends.

Randy,

LOL

Liked the last sentence of your comment. If I replace the shotgun with a semi- automatic pistol, shall I still meet the definition?

Randy, I agree that these are unusual economic times, and that some of the usual investing rules may not apply. However, I believe that one rule does still hold true.

Namely, that people are unduly pessimistic at a market bottom and unduly optimistic at a market top. So I tend to discount what the guy in your first link said: "Unless we start to get sane people with real live experience outside of the governmental bubbles, we may see the total meltdown of western civilization."

Well, people have been predicting the end of the world as we know it for a long time. Pretty much, as long as civilization has been around. Yes, the Dark Ages weren't pretty, but hopefully we've learned something since then.

Anyway, I'm not as pessimistic as you are about the prospects for this country and the world. Maybe I'm wrong. But if things go in the crapper, I don't think a garden and a shotgun (plus the other stuff you mention) is going to help much. The "Mad Max" future makes total social breakdown look much worse than your "balanced" scenario could deal with.

>The point is, even by throwing darts at a >board divided equally into "buy" >and "sell" zones, some people will end up >with a winning investing strategy.

Brian, deciding to sell in this market environment was not equivalent to throwing darts or flipping coins. When you have Housing ATMs, "subprime contained", flipping houses, 20% annual housing appreciation, it is clear something is wrong.

I have been a devoted buy and holder since 1987, and plan to be once again. But when I saw a 90% yearly return in 1999 in my 401k small/midcap fund, I knew something was wrong. But I held on, and rode the market down in 2001-2003.

This time I vowed to not ride it down. And the market will have to climb 82% more to reach my sell point. I think I can figure out when to buy low...

Brian, actually I'm more optimistic. I don't predict a Mad Max future though I expect there will be pockets of Mad Maxism. James Kunstler who writes blog post every Monday on the state of the nation is also a novelist, quite a good one. His World Made By Hand http://www.amazon.com/World-Made-James-Howard-Kunstler/dp/0871139782
does posit a mad world in the future. And it's chilling to think about. I recall a guru we are familiar with saying that the US was going to learn what it's like to be a third world country. But then he might not know his ass from his elbow. Maybe he just reads doomer blogs. Sharon Astyk is a young woman who writes about Peak Oil in a very practical way and always gives readers something to think about as in this recent post: http://sharonastyk.com/2009/03/10/utility-issue-scenarios/
I'm more inclined to believe that communities will pull together to try and solve whatever Peak Problems occur rather than descend into some kind of apocalyptic nightmare . Some parts of the world are getting a head start. The Transition Town Movement (http://www.energybulletin.net/node/25464) is looking forward realistically and optimistically to the future, a future with a more local, more productive outcome.
American history is really about the real estate business from the first explorations to the pioneers moving west to various wars and onto credit default swaps. Americans are a greedy people who took the real estate business just a bit too far.
I'm hopeful that we can pull together and make a clean transition to a less complicated, more realistic way of living.

Well, Cramer had the guts to go on Stewart last night but he got his butt kicked. I'll give Stewart credit for taking him on mano a mano and coming out on top. But why doesn't the partisan Stewart hang democratic congressmen Barney Frank and Chris Dodd by the rafters? They had far more responsibility in overseeing this financial debacle than Cramer. I have changed my opinion about Stewart. I was wrong. He's not a punk. He's a weasel.

I am calling the market bottom, for now, not that there won't be some downside reaction to the 1000 point rise in the Dow this week. I think there will be some recovery over the coming months and a temporary reprieve in the global economic crisis. The parabolic downcurve in banking and financials has reached its nadir. This will force collapse and chaos, OR mergers, bailouts, intervention, even nationalisation. Which do you think the governments will favor? I see renewed inflation as the year goes on as fiat capital enters the market. Watch for new bull markets in copper and oil. Gold and silver should remain strong.

Brian,

What vanguard index funds are you investing in? What is the expense ratio, if any?

In addition, "optimistic" and "pessimistic"
are just words. I don't have a problem with the present, or the future.

Best wishes,
Roger

Roger, we have some DFA (Dimensional Fund Advisors) index funds. I suspect Vanguard funds are just about as good. DFA has an added bit of "geekiness" that appeals to me. If you look at the DFA web site you'll see what I mean. They claim to have figured out some index investing wrinkles, based on research into what investing strategies are most fruitful.

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