01/04 Kelly Letter Topics
Weekly market review
Seasonal rally
Abysmal manufacturing
Horrific housing starts
Crumbling consumer conf
Rising oil price
Obama's cabinet
Is the Fed a failure?
Platinum 5-star stocks
Market forecast on track
Oil price trends
When to short Treasuries
I've written a lot recently to subscribers about waiting patiently in the face of a sell-off, as we're witnessing now. It's one of the hardest times to be patient because we've already waited several months to buy certain stocks, it looks like the time to buy is finally upon as all prices slip lower, and nobody wants a sale to get away.
Patience, my friend, is as important as money in this business.
Last week, I received this from Ken in Woodside, California:
It looks like you did the right thing to flag [the homebuilder we want to buy] at $16, but you blew it by not actually buying when it went there. You do this all the time. You set a target price, then wait on the sidelines as it's breached, keep waiting, and ultimately end up missing what you correctly flagged as a good target price. I know from your results that you get more than you miss, but it doesn't feel like it right now.
Well, those feelings are misleading. Almost all feelings are misleading, which is why it pays to focus on facts.
The homebuilder we're watching was heavily bought by an historically astute insider earlier this month. Back in 2004, he unloaded $18 million worth of the stock at about $90. He disappeared for nearly three years, then started buying on Aug. 9 of this year at around $17, and continued investing a total of nearly $14 million. The lowest price he paid was $16.19.
I set a target buy price in The Kelly Letter of $16 on the stock.
At the end of last week, the stock closed at $19, a full 19% higher than our target price. It would "take a drop of 16% to get down to your target price now," Ken pointed out to me. "Not likely."
Yesterday, the stock closed at $16.19, a familiar number. We're sitting right where the insider got his best deal, and are on the brink of being able to put our money to work at a price even lower than his $14 million got in. What's more, the shares dropped below $15.90 intraday.
Ken's emotions during these volatile times are understandable. They're what all investors need to grapple with. You don't want to lose money by getting in too early, but you don't want to miss out on the discounts flying up left and right during the faux crisis called sub-prime.
Kelly Letter readers and I expected weakness in the medium-term starting last spring. It's here. The reason it's here doesn't scare us one bit. This, too, shall pass and we'll emerge from it with stocks bought on the cheap when others were clamoring for the exits.
Yet, it doesn't mean we're buying everything as soon as it gets lower than it was in early July. No, if this business were that easy, nobody'd have a regular job. We're getting the sale I expected last spring, but it's not over yet.
