11/14 Kelly Letter Topics
Weekly market review
The bottom holds
Big bounce volume
Recession projections
The magic midpoint
LevMark Timer holds
Crocs is dying
Hope for Goldman
Importance of retest
Could you have timed your switch from bearish to bullish any better? That was brilliant. I'm kicking myself for not moving money into the market two weeks ago, when you first said to get back in, and then last weekend when you reiterated the call.
My wife said the market looks scary with all the credit trouble, and she worried that banking problems like England's run on Northern Rock might come to the U.S. She said, "People are lining up at banks and you're gonna put money in the stock market?" That scared me a little, so I stayed away. Now, your Dow strategy is up 10% in the last two weeks or something, and I'm frustrated that I let her talk me out of investing.
Do you think I missed the boat?
No, I don't.
Since I changed from medium-term bearish to medium-term bullish on Sept. 10, here's how our permanent portfolios have done:
Dow One: +22%
Double The Dow: +9%
Maximum Midcap: +8%
Keep in mind that a good portion of those returns came just yesterday, courtesy of the Fed's 0.5% rate cut, which sent Double the Dow up 5% and Maximum Midcap up 6% in just a single day. The Fed doesn't cut rates every day and the predictable pop after its doing so may not last, so I wouldn't get overly excited about that.
What I would understand as quickly as possible, however, is that the market is poised for a solid performance in the medium term. If you're still stuck on last month's headlines about sub-prime and shaky credit markets, you're looking in the wrong direction on your calendar. Flip forward, not back. It won't be long until this silly little correction isn't even talked about, and it won't rate anywhere near the top of the issues successfully faced down by the stock market.
Here at The Kelly Letter, we were never afraid of sub-prime. We never thought the "state of the market these days" was scary. We watched all of the action with amusement, and watched for bargain prices, but not for even a minute did we think systemic failure was imminent.
If you did, take this opportunity to look into yourself and ask if you have what it takes to be an investor. I'm not joking. What happened over the summer is not unusual in the stock market. If it rattled you, this business may not be up your alley. If you pay attention to fear-mongering headlines in even the most august of publications, this business is definitely not for you. If your first reaction when hearing how bad things are is to think about what to sell when you should be thinking about what to buy, you need to hang it up while you still have some capital left.
Now, the market won't keep going higher at this pace, of course. Last week was great and this week is off to a heck of a start, but even in a strong medium-term environment, the market won't just rise.
You'll know you've reached a professional stance when your approach to stocks is the same no matter what's in the newspaper. When they say the world is ending, you look for bargains. When they say it's a new world economy and that stocks won't ever go down again, you still look for bargains. The media is a sideshow, folks, and the sooner you realize that, the better.
Directly to Alan's question: No, I do not think it's too late to get in this market. The beauty of my permanent portfolios is that it's never too late, hence their name. What Alan really wants to know, though, is whether he missed the opportunity to get money in for the end-of-year run-up I wrote about.
Obviously, he missed some of the performance, but not all. The end of the year is quite a ways out there still, and the people who think the market is scary will take more convincing to realize that it's not -- and will pile on just about the time the bargains are all gone. That will send prices higher, so there's still upside in this market.
As ever, be smart. Don't put your money in at the highs following the Fed's rate cut. Wait for another scary headline and a price drop. It'll happen along the path higher, which is still intact.
