He Bought At The Bottom

I love talking to people about investing. Listening to what people are doing and how they interpret the financial news is very helpful to me. Being a contrarian has been profitable to me.

In the last month, I’ve talked to several people about the stock market. Here are some of the things I’ve heard.

  • I bought at the bottom. – A very smart engineer said with complete confidence, that he fully invested into the stock market at the bottom. When I inquired how he knew it was the bottom, he seemed puzzled as if the market couldn’t drop below the late October lows. Note that since we talked it already has. Other than the 1987 computer glitch crash, I have yet to find a market bottom formed from the massive day to day swings in price action that we are seeing today. When the market roars back on a single day or week, it is often not a reaction to positive news, but a squeeze on those shorting stocks. Once the squeeze ends, the stocks resume their downward channel.
  • It’ll come back in three years. – A lady in software training informed me that all the losses in the market are troubling, but she is confident the market will return it all in three years. I asked how she arrived at three years. Her response was that it always comes back.
  • It doesn’t matter, since I have a long time before retiring. – I’ve already covered this silly statement. If retirement is delayed by years, then it does matter.

When I put my house up for sale in 2005, I heard similar nonsense. Houses could only go up. Home prices never go down. People just repeat what they hear without checking their sources. And often what they heard was some nonsense they saw or read from the financial media, which make its money from advertisers whose goal is to keep you fully invested in the market at all times.

Market bottoms come after capitulation. Here in Seattle, I haven’t even heard the faint whisper of capitulation. We got a ways to go before bottoming. I’m still calling for an S&P 500 of 600.


Add yours

  1. I have said that I won’t debate finance anymore, so I won’t. But I will say that when you crap all over the idea of long-term investing, it drives me crazy, since you always use the “market” as your example. In my experience, when people talk about buying and holding, they are talking about picking solid companies with good management, and then holding on even when the stock goes down, and perhaps even buying more, so long as the solid positive fundamentals of those companies has not changed. See Warren Buffet.

  2. This post seems to be more about human behavior than investing. MAS should add “Sociologist” to his resume 🙂

  3. There is a certain low-idiocy in the market right now and I think we’re nearing a bottom–although I recognize the foolishness of stating that. Companies that deserve to go bust are going bust and some that didn’t deserve it too. But when very profitable companies are trading below the value of their cash reserves it’s just silly. Some of the stupid-low valuations aren’t tied to anything measurable or perceptible and that’s indicative of a serious over-sell.

  4. Nick, I am not a stock picker nor do I wish to be. Great companies like GOOG are not immune to massive losses in their market caps during secular bear markets.

    We are in a secular bear market. You are more than welcome to be a buy-and-hold long term investor. I prefer to buy low and short high.

    Return OF capital is goal #1 in a Bear Market.

  5. DHammy,
    2007 valuations were irrationally high. Mergers, acquisitions, a weak US Dollar and share buy backs totally inflated the indexes.

    I don’t expect the market to fall to fair valuation, because it never does. It always overshoots. It will go below fair market.

  6. Nick,
    How is Warren doing these days? Sold BILLIONS in Puts on the S&P 500 back in March. Also heavily invested in insurance and finance. Nobody wins forever.

  7. There seems to a continued debate about what to do in these hard economic times. How low will the S&P go? Will oil continue it’s slide?
    I am glad that someone has finally proposed a solution that everyone, white and black, democrat and republican, can finally agree on:

  8. Nobody knows how low it will go. That doesn’t mean it’s crazy to think we’re not at a bottom yet.

    I know a math Ph.D from Caltech who bought at the top and is probably going to lose the home to foreclosure.

    Back in the day the smartest people in the room thought that the earth was at the center of the universe. They had fancy diagrams explaining the solar system and top calligraphers documenting the system.

    There aren’t many calligraphers left these days. They’ve been replaced by anchors on CNBC.

  9. All nation-state systems are coming to an end, and will be dominated by the financial oligarchs of London thru one of the most tyrannical forms of emperialism to ever encroach upon the planet. World war II will be pale in comparison to what is to take place in the near future as individual nations try to desperately combat the new world order.

    Where is the bottom?

    Its when all world governments give their allegiance to the oncoming one world power, more than likely thru the United Nations.

  10. KirkH, just so you know: a Ph.D in Math (or any other analytical discipline for that matter) does not usually make a person super smart or all-knowing and therefore immune to poor decision making.

    Getting the degree is more a test of endurance than of intelligence, take it from someone who knows 🙂

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