Stocks dropping at the start of 2008: how are you responding?
I don’t know about your portfolio, but mine has taken a hit since the start of 2008. Have you made any trades so far this calendar year?
I admit that as the market moves up or down, my brain goes through all sorts of scenarios that lead to riches.
These are huge moves, so why didn’t/couldn’t I see them coming?
As I mentioned in a previous entry, the truth I’ve embraced is that predicting movement of any one stock is incredibly hard. Predicting movement of a group of stocks is also incredibly hard. I’ve heard wise investors preach that trying to “time the market” is a loser’s game, and I’m sure that holds true the far majority of the time. Remember that even analysts, whose job is to rate stocks a buy, sell, hold, etc., are wrong a lot of the time. Their full time jobs involve making educated guesses about where a stock price will go.
Consider the analyst opinions of Sirius Satellite Radio (SIRI). Currently Yahoo! Finance’s Analyst Opinion page for SIRI shows:
So what, as the observer, am I supposed to do with this information? I don’t own shares of SIRI, but should I buy a lot, a little, sell short, or do nothing in order to make money with SIRI? Okay, so doing nothing to make money sounds a little nonsensical. But to do nothing instead of buy a stock before it drops could be looked at as not losing money.
*head explodes*
I want to remind you that I’m not knocking analysts or what they do for investors, but my point again is that predicting stock behavior is damn hard.
Going back to my original question (Have you made any trades so far this year?), my personal answer is yes. I haven’t sold anything; instead, I’ve bought more shares of two companies whose stock prices are lower than my cost bases. I consider the companies to be solid. In my mind they were worth buying in the first place, I’ve reevaluated, and I still feel like they’re worth buying. I’m taking advantage of what I perceive to be sensible buying opportunities. I bet sometimes even Britney Spears loves a good bargain (okay, maybe she doesn’t care at all, but that’s for sites like The Superficial to satirize).
Sure, these stocks might go lower. Sure, there could be a recession coming. Maybe we’re in one already? Then again, one might not show up at all and the markets could make a strong rebound next week. To make money as a market rebounds, it sure helps to be in the market.
I’m not suggesting that you immediately dump all your cash into stocks. Many even consider it prudent to maintain extra cash right now as protection against continued declines. If you’re a traditional investor committed to making money through buying stocks, though, then you’re probably interested in buying low and selling high (and/or by collecting dividends). Given that’s the case, at some point you’re going to have to put some cash to work. When and how that happens is up to you.
Long story short, many stocks have been dropping in 2008 and they might drop further. Do your homework, buy/sell in increments, and most importantly make some moola.
Best of luck to you!
Full disclosure: At the time of writing I have a long position in BAC. I do not have any positions, long or short, in any of the other stocks mentioned in this entry.
I admit that as the market moves up or down, my brain goes through all sorts of scenarios that lead to riches.
...if only I’d bought some January 7.50 Call options for Countrywide Financial (CFC) before news of Bank of America’s (BAC) CFC purchase was announced
...if only I’d sold short shares of Big Five Sporting Goods (BGFV) as it dropped from $25/share last summer down to $20/share and even farther down to the recent $11/share.
These are huge moves, so why didn’t/couldn’t I see them coming?
As I mentioned in a previous entry, the truth I’ve embraced is that predicting movement of any one stock is incredibly hard. Predicting movement of a group of stocks is also incredibly hard. I’ve heard wise investors preach that trying to “time the market” is a loser’s game, and I’m sure that holds true the far majority of the time. Remember that even analysts, whose job is to rate stocks a buy, sell, hold, etc., are wrong a lot of the time. Their full time jobs involve making educated guesses about where a stock price will go.
Consider the analyst opinions of Sirius Satellite Radio (SIRI). Currently Yahoo! Finance’s Analyst Opinion page for SIRI shows:
- 6 analysts rate SIRI Strong Buy
- 6 analysts rate SIRI Buy
- 7 analysts rate SIRI Hold
- 1 analyst rates SIRI Underperform
So what, as the observer, am I supposed to do with this information? I don’t own shares of SIRI, but should I buy a lot, a little, sell short, or do nothing in order to make money with SIRI? Okay, so doing nothing to make money sounds a little nonsensical. But to do nothing instead of buy a stock before it drops could be looked at as not losing money.
*head explodes*
I want to remind you that I’m not knocking analysts or what they do for investors, but my point again is that predicting stock behavior is damn hard.
Going back to my original question (Have you made any trades so far this year?), my personal answer is yes. I haven’t sold anything; instead, I’ve bought more shares of two companies whose stock prices are lower than my cost bases. I consider the companies to be solid. In my mind they were worth buying in the first place, I’ve reevaluated, and I still feel like they’re worth buying. I’m taking advantage of what I perceive to be sensible buying opportunities. I bet sometimes even Britney Spears loves a good bargain (okay, maybe she doesn’t care at all, but that’s for sites like The Superficial to satirize).
Sure, these stocks might go lower. Sure, there could be a recession coming. Maybe we’re in one already? Then again, one might not show up at all and the markets could make a strong rebound next week. To make money as a market rebounds, it sure helps to be in the market.
I’m not suggesting that you immediately dump all your cash into stocks. Many even consider it prudent to maintain extra cash right now as protection against continued declines. If you’re a traditional investor committed to making money through buying stocks, though, then you’re probably interested in buying low and selling high (and/or by collecting dividends). Given that’s the case, at some point you’re going to have to put some cash to work. When and how that happens is up to you.
Long story short, many stocks have been dropping in 2008 and they might drop further. Do your homework, buy/sell in increments, and most importantly make some moola.
Best of luck to you!
Full disclosure: At the time of writing I have a long position in BAC. I do not have any positions, long or short, in any of the other stocks mentioned in this entry.
One thing I've been wondering: What would happen if a person came up with a really, really effective algorithm for predicting stock behavior -- one that could lead to results nearly as definitive as insider information would. Would it become illegal to use that algorithm?
IMO, the only way it'd be considered illegal is if some inputs to that algorithm were insider information. If your algorithm inputs are publicly available information data items and the algorithm is just that good, enjoy the riches!
Some trading / prediction ideas tend to work for some pctg of the time. If they work more than half of the time, maybe you're in decent shape. Other algorithms tend to stop working once they become public. The more people that use the algorithm, the less effective it can become. That's good incentive to keep your magic algorithm hidden until you've made enough money to be satisfied. Wish I had one of those!