Wednesday, October 14, 2009

Mister Market Is Laughing At Me

I will never be a great investor because I never follow my convictions and place all my marbles on my view of the future. My hedged bets tend to minimize being right and being wrong. That approach suits me as I sleep well and am still solvent. In the current rally, my stock positions have grown nicely and make me feel good. My cash position, on the other hand, makes me want to go sit in the corner.

As I stare into the corner I calculate how much I could have made had I put all my cash to work in equities. That bothers me. Then I remember how horrible it feels when stock prices tick downward and net worth sinks. An especially sick feeling if you are retired and no longer earn any replenishing investable cash. That's why I attempt to stay cautiously invested. Home runs aren't worth the risks involved.

Within the next six months I'll be happy that I'm not fully invested and I hope that I recognize an appropriate time to pull back from my long positions. I probably won't and that is why market timing is difficult.

JP Morgan is instructive. I should have bought it six months ago. Now it sells at almost its ALL TIME HIGH! Even after the dilution that came from issuing lots of new shares to repay TARP loans. You'd think that all the problems are finished. No, they remain. Now JPM is the best of the big banks, but they are still loaded down with non-performing consumer loans and accelerating losses. Loss Reserves have been built, but they will need further provisioning. The market has been celebrating the slowing of JPM's rate of losses. Losses are still growing, just not as fast! Is that worthy of a stock price that is very near its all time high? I don't think so, but I wish I had bought some six months ago. Now sure isn't the time to buy, but traders are.

Goldman Sachs is a similar story, as are the BRIC and commodity stocks. Their recent results have been astounding. They make me green with envy and feel like donning a dunce cap. Until I think about the likelihood of them remaining at current levels, then I regain some comfort in my liquidity.

A review of a DOW chart of the Great Depression depicts a strong bounce back before returning to lower levels. We've had our bounce back, and it may go higher, but I suggest preparing for a return to bleaker times. I will sleep peacefully, even though I will wish I had made some easy money when Mister Market taunts me.

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