Better to focus on short-term punting in this market
By R SIVANITHY 9 February 2009
Legendary investor Warren Buffett last week reportedly said that now is a good time to buy US stocks because once the market’s capitalisation reaches a certain proportion of GDP, past experience shows this to be a buy signal.
Given his reputation, such advice might be seen as being indeed valuable and noteworthy. Problem is, you can’t help wondering if Mr. Buffett ever called a ‘sell’ on the market, or wonder what else he could be expected to say, given that he went long recently and is sitting on large losses.
The Jan 26 issue of US newspaper Barron’s reported (‘Warren’s Unhappy New Year’) that his investments in American Express, Wells Fargo and US Bancorp could have dragged Berkshire Hathaway’s equity portfolio down 14 per cent in 2009 versus 8 per cent in the S&P 500. As of the date of that report, Berkshire’s shares were down 10 per cent in 2009.
With such figures, can anyone reasonably be expected to say anything other than stocks are a buy?
Of course, the defence would be that Mr. Buffett is a ‘long-term investor’, which is probably the same defence mounted by others who bought heavily into the crumbling US banking sector and have suffered large paper losses; investors who violated a cardinal rule of investing, namely that when a banking crisis strikes, never buy too early.
The bear market of the past 15 months has taught market participants many lessons, none starker than the fact that realistically, anyone who bought to hold because they have a long-term view is doomed to suffer continual pains.
Instead, those who choose to participate would have done much better by shortening their horizons, lowering their expectations and adopting a short-term trading stance.
Among the strategies which would have ensured survival would have been to buy selectively into dips and immediately sell into strength, and to have bought ahead of any major US government announcement and again, to have sold once the announcement was made.
These are clearly trading approaches adopted by the big money, which often buys in this part of the world ahead of the US so that they can sell into strength the following day.
The point about the present market being suited to short-term traders was made by fund manager Marc Faber during Barron’s Roundtable discussion.
Also in the Jan 26 issue, Mr. Faber not only spoke about the volatility being ideal for short-term players, he had this to say about the present outlook: ‘I’m not optimistic about the global economy. The next Madoff case - the next Ponzi scheme - is the US government. It will go bust. It is only a question of time.
‘Everyone says stocks are cheap because they are 50 per cent down from their peak. But Japan was the same level four weeks ago as in 1981. Korea was at 1988 levels. These markets are relatively cheap because in 20 years, there has been progress. If the US went back to 1990 levels, the S&P 500 would be at 300 (versus 869 on Friday).’
Closer to home, DBS Group Research in a Friday report said that Asia’s exports have fallen more in the past three months than they did during the entire 1997/98 financial crisis or the high-tech bubble burst of 2000/01, and expects full-year GDP contractions in five of 10 Asian countries.
‘As in 2001, the countries being the hardest hit are the small, very open countries like Singapore and Hong Kong,’ said DBS whose analysis suggests that the drop in exports is more related to China than the US.
All of this is not to say that there are no trading opportunities for market players - as Wall Street has repeatedly illustrated, markets can bounce despite an awful economic backdrop.
However, it would be foolish to place too much credibility on such bounces, not when the crisis has yet to run its course.
In one sentence: Forget ‘long-term investing’ and focus on capital preservation by becoming a short-term punter.
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Better to focus on short-term punting in this market
By R SIVANITHY
9 February 2009
Legendary investor Warren Buffett last week reportedly said that now is a good time to buy US stocks because once the market’s capitalisation reaches a certain proportion of GDP, past experience shows this to be a buy signal.
Given his reputation, such advice might be seen as being indeed valuable and noteworthy. Problem is, you can’t help wondering if Mr. Buffett ever called a ‘sell’ on the market, or wonder what else he could be expected to say, given that he went long recently and is sitting on large losses.
The Jan 26 issue of US newspaper Barron’s reported (‘Warren’s Unhappy New Year’) that his investments in American Express, Wells Fargo and US Bancorp could have dragged Berkshire Hathaway’s equity portfolio down 14 per cent in 2009 versus 8 per cent in the S&P 500. As of the date of that report, Berkshire’s shares were down 10 per cent in 2009.
With such figures, can anyone reasonably be expected to say anything other than stocks are a buy?
Of course, the defence would be that Mr. Buffett is a ‘long-term investor’, which is probably the same defence mounted by others who bought heavily into the crumbling US banking sector and have suffered large paper losses; investors who violated a cardinal rule of investing, namely that when a banking crisis strikes, never buy too early.
The bear market of the past 15 months has taught market participants many lessons, none starker than the fact that realistically, anyone who bought to hold because they have a long-term view is doomed to suffer continual pains.
Instead, those who choose to participate would have done much better by shortening their horizons, lowering their expectations and adopting a short-term trading stance.
Among the strategies which would have ensured survival would have been to buy selectively into dips and immediately sell into strength, and to have bought ahead of any major US government announcement and again, to have sold once the announcement was made.
These are clearly trading approaches adopted by the big money, which often buys in this part of the world ahead of the US so that they can sell into strength the following day.
The point about the present market being suited to short-term traders was made by fund manager Marc Faber during Barron’s Roundtable discussion.
Also in the Jan 26 issue, Mr. Faber not only spoke about the volatility being ideal for short-term players, he had this to say about the present outlook: ‘I’m not optimistic about the global economy. The next Madoff case - the next Ponzi scheme - is the US government. It will go bust. It is only a question of time.
‘Everyone says stocks are cheap because they are 50 per cent down from their peak. But Japan was the same level four weeks ago as in 1981. Korea was at 1988 levels. These markets are relatively cheap because in 20 years, there has been progress. If the US went back to 1990 levels, the S&P 500 would be at 300 (versus 869 on Friday).’
Closer to home, DBS Group Research in a Friday report said that Asia’s exports have fallen more in the past three months than they did during the entire 1997/98 financial crisis or the high-tech bubble burst of 2000/01, and expects full-year GDP contractions in five of 10 Asian countries.
‘As in 2001, the countries being the hardest hit are the small, very open countries like Singapore and Hong Kong,’ said DBS whose analysis suggests that the drop in exports is more related to China than the US.
All of this is not to say that there are no trading opportunities for market players - as Wall Street has repeatedly illustrated, markets can bounce despite an awful economic backdrop.
However, it would be foolish to place too much credibility on such bounces, not when the crisis has yet to run its course.
In one sentence: Forget ‘long-term investing’ and focus on capital preservation by becoming a short-term punter.
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