Friday, October 08, 2010

I came, I saw, I bailed out

I am deviating from the Angus-Mungowitz investment optimism, at least in the short run.

On August 3, Angus did a dangerous thing, making a prediction...about the future. I went along, and in fact had been buying stocks for a bit.

But I'm out, as soon as the trades can be executed. Almost totally out.

1. Since August 3, stocks have risen a bit, total. Not a lot, from about 10680 to 10950, with a drop and recovery in between, but if you had bought on the advice o'Angus on August 3 you would already have made 2.5% in 2 months. Don't be greedy.

2. It's October. Sure, I know that this is like believing in goat entrails or tea leaves, but some bad stuff has happened in October. You may enjoy this, especially the "ripe pumpkin theory."

3. There's an election. I know 'cause it's in all the papers. And no one knows what is going to happen. Not knowing means volatility and lots of it.

I parked almost everything in money market and real estate. (TIAA-CREF's real estate account is up 8% this year, btw). Bonds may be bubbling, 'cause any change in inflation expectations will hammer them. Bonds aren't usually this risky, though they are always riskier than many people seem to believe. And stocks scare me until after the election. That means zero out stocks, and zero out bonds, for a month.

So, depending on what happens on the first Tues after the first Mon in November, I may go back to stocks. But now I am officially on the sideline.


Anonymous said...

If you're convinced enough to bail why not short?

Mungowitz said...

It's an interesting question. Zero has a special status in our minds, but it shouldn't.

And to "lose" money, for most of us, is to lose something we already have. But in fact "losing" something we could have had with a different decision is just as much a loss.

So, if I believe what I say, why not short?

Maybe I'm not so sure.

And if I am parked in money markets, all I can lose is the money I failed to make.

Anyway, let's just hope I'm wrong. That would be the best outcome!

REW said...

Just do what is right for you, so i won't argue with your take.

Me, I won't fight the Fed, as they try to drive all prices higher, including stocks.

Also, Mark Perry notes the prediction market odds now have Dem retention of the Senate now below 50%.

BR said...

I'm w/ REW regarding inflation. The stock market surge seems like a 'leading indicator' that inflation is coming. I don't see a lot of companies investing in revenue generation, just cost reduction. So, a significant surge in the market signals inflation to me. That said, I have never been at more of a loss for an investment strategy. Got lots of amplified gold ETFs, which are doing well, but the price of gold vs its intrinsic value is scary too.

One strategy might be to use offsetting calls and puts. If serious volatility comes, the gain in one will be greater than the loss in the other.

Mungowitz said...

BR is right, of course. You could run a "straddle" with puts and calls that would be in the money outside a narrow range. But then you really have to pay attention.

This way I can just sit in a rocking chair and watch.

And money markets capture inflation pretty well, though with a lag compared to stocks, I admit.