Hi everyone,This paper by Howard Marks of Oaktree Capital fits the MUE investment philosophy to a tee. Currently, he feels we're likely in the first half of the second stage (of three) of a bull market."No one should say the likelihood of improvement is entirely unrecognized today, as would have to be the case for this to still be stage one. I think the existence of improvement is generally accepted, but that acceptance is neither extremely widespread nor terribly overdone. Thus I’d say we’re somewhere in the first half of stage two. Pessimists no longer control market prices, but certainly neither have carefree optimists taken over."advisorperspectives.com/commentaries/oaktree_031513.phpCheers,Jim
Very good read, thanks.No doubt the pessimists have ruled the market for the four or five years. Seems to me we're starting the third stage, with people getting comfortable with stocks again.
Keep your heads about you, mates. These are classic signs of a market top. Stocks with high multiples are most at risk. I'm not a permabear, but I'm always skeptical.Jim- I would have been a jerk to thumbs-down your GNRC pick when you made it, but you did buy it after a run-up. Chances are super high that you could buy it for much less. Even with good reasons to buy now, it pays to consult the (basic) chart. Taking positions for 10-20% less can make a huge difference over time. GNRC will (almost) certainly retrace to $30 (would improve your performance by 13% if you buy at $30 and it returns to $34); if there is a strong market-wide downdraft, it'll (almost certainly) revisit $25 (a 36% improvement in performance if you buy at $25 and it returns to $34). There is also a significant chance that it will see the low $20s sometime in the next 52 weeks. I don't point this out idly...I've enjoyed your ideas and research, but I think your portfolio suffers from the most elemental timing issues. This is different from "timing the market." It's simply recognition of the way most share prices move most of the time. Patience is very much a virtue...always.All the best to you and your MUE.-Randy
Hi Randy,Appreciate your comments and the fact that you're following along.I hear what you're saying about stock price movement and entry points. However, I don't think it's very helpful to look at price charts (though I could be totally misreading your comments). I was successful twice in initiating a trading position on Meritage Homes (MTH), buying around $16 and selling around $22. I did that twice after noticing that pattern repeat 2 or 3 times before that. However, my second sell turns out to have been the wrong thing to have done that as the price didn't go back down, but continued to climb to the current $40+ level. I made money, no complaints there and I still own shares, but the pattern totally broke down. But that's the only one where I did that and I only did it because I had followed the company for four or five years by that point and was totally comfortable with trying to take advantage of it.Buying into a new position such as Generac, I'd be pretty bad at unless there was a very clear up and down movement. And, having read that comment by the analyst that the share price generally moves down about 9 months after a serious storm (which caused an uptick in orders, therefore quarterly results, therefore share price), I looked and tried to correlate serious storms to Generac share price. And I just couldn't come up with anything that seemed reliable to me.Value investors (and the MUE port is based on value investing) are notoriously early in identifying companies and buying into their shares. They often overcome (or mitigate) that by buying several times after identifying the company as an investment. I've done that in the MUE port with Transocean, buying at $63.94, $69.41, $55.99, and $48.99 and Power-One, buying at $8.82, $8.83, $7.48, $7.41, $5.05, and $4.10 (holy cow, six purchases).I haven't done that with every position (Western Digital at $32.78, $32.18, $28.96, $40.77, and $48.86 or Apple at $328.62, $396.37, $371.36, $525.70, and $511.94, for instance) because I'm also trying to buy more of my winners even if that means at higher prices.Finally, I'm operating under a constraint that individual investors may not be. I have to make 3 purchases a quarter -- it's one of the rules these ports with TMF's money are supposed to operate. That can be existing positions (and for much of the past six months, they have been) or a new position. So, when I come across a compelling new idea (like Generac), I usually don't have the luxury of waiting for a lower price.Finally, if Generac's price does take a significant dive, I'll likely add to the position.Anyway, thank you much for your comments. I just don't think I'm very good at identifying best (or, at least, better) buy points. :-) Cheers,Jim
Hi Jim;as per RIG and PWER; that's a whole 'nuther lesson, and I have to say that you play it very well. The key is to be fearless on pullbacks. -Randy
My preference is to set up limit bid traps at possible highs and lows after a company has been identified as likely. A help to reduce subjectivity about this is a modification of a method read about on the net. They pointed out that identifying the 1 and 2 standard deviations above and below the average price for a given period of time could be useful. Stock prices do not follow the normal distribution, but tend to be more often at the extremes. I modified this method by adding a multiplier that looks at a stretch of the beginning and end of the period used and puts in a momentum component. Also, I use a short period (90 days) and a long one (three years) and choose which to use after seeing them. Buy at -1 SD down, stop loss at -2 SD, sell at +2 SD. The mins and maxes on the three year period can also be useful. Testing now. This has helped - I did my first successful sell low, buy lower. Tripped on the stop loss, set a buy at a lower price, got more shares at 6% lower. Someone with more experience might not need this method.
PS For me the hard part of being a contrary value investor is patience. Making myself go through the calculations helps with this. It wouldn't be practical without a good spreadsheet and its built in functions - as it is, the primary work is taking an example and putting in the current price histories and stock name. Fifteen minutes or so for a first time, perhaps three minutes for an update on an existing one. It isn't trying to time the market. It is trying to price the stock.
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