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Author: Hohum777 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 465130  
Subject: Why the smart money is underperforming? Date: 10/12/2012 10:49 AM
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Hedge funds are significantly lagging the market in 2012.

One of the reasons suggested-
Assets have been pouring into hedge funds over the past few years from pension funds and other sinstitutional investors, and the funds are having a hard time putting all that money to work.

"They're not very good at managing so much money," says Zuckerman. "They're good at their first one through five best picks. After that they don't that well."


http://finance.yahoo.com/blogs/daily-ticker/why-smart-money-...

"They're suppposed to be more cautious and underperform in a market up 15%," says Zuckerman, but not by so much. Hedge funds have been "a little too skeptical, a little too suspicious of this rally."

Private equity funds are also having problems this year. Cambridge Associates says the biggest buyout funds launched in 2006 and managing $3.5 billion or more have gained just 4%.


One of my accounts has underperformed and one cause is the skepticism of the rally.
I guess I need to take the road-less-traveled if I want to improve things
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Author: ANDROCLES Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405871 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/12/2012 12:32 PM
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HoHum hmmmms:

" I guess I need to take the road-less-traveled if I want to improve things"

HoHum raises an important issue; do I follow the crowd or recognize that the crowd is usually wrong, especially the METAR crowd? Tell you what, HoHum, here's a tip that seems to work. Notice who leads the stock picking contest; three posters who seldom post; Dkline1, Knightof3 and myself. Collectively, the three of us post less frequently in a month than some here post in a single day. That's worth noting. Maybe having too much to say means having nothing to say. Remember Mike "Mish" Shedlock, the founder of this board? He posted 20 times a day for 7 years. Mish hasn't been right since Hector was a pup but he still remains an oracle on the "world" economy for some here. I often wonder how Mish's investment fund is doing after so many years of betting against the trend. Has anyone here ever seen an audited performance report on Sitka Pacific?

Also, note how the those who specialize in essay-length posts are faring. I'm chuckling to myself because some here are determined to give oodles of investment advice, mostly negative, but are unwilling to declare themselves with stock picks, perhaps out of fear that their stock picks won't validate their "from the Mount" advice.

The market has doubled since the spring of 2009. Sentiment here continues to be relentlessly bearish. I guess that one day the bears will claim victory but don't count on it for the near future. October's job numbers (due for release prior to the election) will be the best in many months. That should goose the markets over 14,000 before the end of the year. Time will tell.

Andy

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Author: qazulight Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405873 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/12/2012 1:11 PM
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SPX 1600 has been my call.

My picks conservative pick ITW is up and my long shot, ERF is down.

I am, and continue to hold cash in my trading account. Was going to trade and just didn't.

Still hold "T" in my 401k and add every two weeks, still holding the fund account I bought last century.

The charts say we go to 1600 on the SPX, it has been my call for a long time. While I should have bought your Apple I still say, no doom and gloom.

We will get another panic, and I will spend like a drunken sailor when the time comes.

Cheers
Qazulight

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Author: Hohum777 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405880 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/12/2012 2:13 PM
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HoHum raises an important issue; do I follow the crowd or recognize that the crowd is usually wrong, especially the METAR crowd? Tell you what, HoHum, here's a tip that seems to work. Notice who leads the stock picking contest; three posters who seldom post; Dkline1, Knightof3 and myself.

You might be correct about yourself and Dkline1, but Knightof3 posts a few times
on other boards. Glad your pick is doing well, but I think you seriously misunderstand the
purpose of the METAR contest. I can't speak for anyone else, but neither of my two picks were
a top 10 pick in my managed port. My safe bet is a current top 10 for me, but that's only because
I added to the position in the last week (something a contest with just a start and end date would not capture)

As for the METAR board, again I think you miss the point. It is one of the most visited boards in
Fooldom precisely because it has such a breadth of topics, views and subjects. I can skip
over the messages I don't agree with and chime in on subjects that I think may impact
me currently, or at a later time.


HoHum

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Author: jgc123 Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405882 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/12/2012 2:32 PM
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Don't we all have good days and bad days?

Androcles at the peak of the housing bubble in January, 2007:

"Housing prices nationwide have risen approximately 25% compounded since the first quote was posted. For those of you waiting for a lower price on that dream house you one day intend to buy, maybe you shouldn't wait any longer."

Matthew 7:5?

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Author: rubberthinking Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405886 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/12/2012 3:06 PM
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Andy,

for all the attempts you make to have a stiff upper lip and browbeat a few of the more bearish posters here.......you at times miss important tops.....all bull of course is not a sin....nor is all bear.....pigs get slaughtered from personal experience......but a top or a bottom is easily missed by bulls or bears respectively.....

We are waiting these days for the legs down on this market......you seem to be waiting for the legs up.......that in my opinion will be a different day.....

I actually consider you a friendly voice on these boards......I never have had a hard time with you....unlike Mish......I dont care if you see fit to browbeat a few posters or not......but a bull is last to call a top.....

Dave

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Author: knighttof3 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405904 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/12/2012 7:55 PM
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HoHum hmmmms:

" I guess I need to take the road-less-traveled if I want to improve things"

HoHum raises an important issue; do I follow the crowd or recognize that the crowd is usually wrong, especially the METAR crowd? Tell you what, HoHum, here's a tip that seems to work. Notice who leads the stock picking contest; three posters who seldom post; Dkline1, Knightof3 and myself. Collectively, the three of us post less frequently in a month than some here post in a single day.


Speaking for myself only.
To be blunt, I got lucky with MED. I didn't put a single penny in it in real life.
I do think that METAR is too pessimistic as a rule, but as the market keeps going up, they have a higher and higher probability of being right. Mungofitch has said that SPY is overvalued by something like 40% (IIRC, if it's a different figure then it's my faulty memory.) This is based on historical earnings trend. I disagree but it does make me inclined to hedge my bets with covered calls and SPY puts.
The cause of my disagreement is flow of funds, investors have pulled OUT $138 billion from the stock market even as they have poured in $500 billion (IIRC) in the bond market. The bonds have nowhere to go but down. Stocks (compared to bonds, gold, commodities; but not real estate) are the last bastion of appropriate return for risk. Intel (INTC) yielding 4% or 10Y treasuries yielding 1.66%? Even SPY has a higher yield.

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Author: AdvocatusDiaboli Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405942 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/13/2012 9:57 AM
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Don't we all have good days and bad days?

Androcles at the peak of the housing bubble in January, 2007:

"Housing prices nationwide have risen approximately 25% compounded since the first quote was posted. For those of you waiting for a lower price on that dream house you one day intend to buy, maybe you shouldn't wait any longer."

Matthew 7:5?


The most significant thing I remember about Androcles' pronouncements was how he cited the continuing double-digit price increases as evidence that there was not a bubble.

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Author: AdvocatusDiaboli Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405944 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/13/2012 11:34 AM
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The cause of my disagreement is flow of funds, investors have pulled OUT $138 billion from the stock market even as they have poured in $500 billion (IIRC) in the bond market.

That has nothing to do with the valuation of the stock market. Sure, treasuries are overvalued. So? They can stay overvalued for a long, long time, or they can drop in price... IN TANDEM WITH THE STOCK MARKET.

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Author: ANDROCLES Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405952 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/13/2012 2:49 PM
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123 reminds:

"Androcles at the peak of the housing bubble in January, 2007:"

That summer house I bought in 2007 at the "peak of the housing bubble" has done quite well for me. Every summer I get unsolicited offer(s) for it far above the price I paid. My two homes, and the stocks I've owned since 2007, have made me a very wealthy man, more than I ever dreamed possible. Looking back, the only advice I can offer to those of you aspiring to my level of financial comfort is: 1) Do the opposite of what you read here and 2) recognize that the clues to successful investing have changed. I'd tell you what they are but it's a waste of time to try and enlighten someone who's already convinced that the America is a failed state with no economic future. I’m not the least surprised that the SPX has outperformed the best efforts of the majority of METAR stock pickers. It happens every year.

AAPL at $35

http://boards.fool.com/angelsrule-asks-quot2500-shares-csco-...

GE at $7

http://boards.fool.com/ge-and-bernie-madoff-27503055.aspx

Staying positive

http://boards.fool.com/the-way-we-are-28233025.aspx

Andy

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Author: MadCapitalist Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405953 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/13/2012 2:56 PM
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recognize that the clues to successful investing have changed.

No, they haven't. Just study Warren Buffett's philosophy. They still work and will always work.

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Author: EthylMercaptan Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405954 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/13/2012 3:19 PM
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Why the smart money is underperfoming?

Isn't that a contradictory statement? Similiar to; The best teams are all losing.

The point being is that if they are underperforming, they ain't all dat smart.

Maybe they were just lucky until now.

C2H5SH

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Author: knighttof3 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405968 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/13/2012 9:57 PM
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Me: The cause of my disagreement is flow of funds, investors have pulled OUT $138 billion from the stock market even as they have poured in $500 billion (IIRC) in the bond market.

AD:
That has nothing to do with the valuation of the stock market. Sure, treasuries are overvalued. So? They can stay overvalued for a long, long time, or they can drop in price... IN TANDEM WITH THE STOCK MARKET.


Markets become undervalued if people pull money out of them, and overvalued if they put money in them.
Bernanke has been singlehandedly putting billions of dollars in the bond market on our behalf. Forget treasuries, even junk bonds are sky-high. They are priced for return-free risk. EDV (Vanguard's long-end treasuries ETF) is yielding 2.89%. Two point 89 percent for a 26.4 year horizon (duration).
I am not trying to predict what happens to treasury prices, I am going by probabilities. Sure, treasuries could stay at this level for the next 20 years (like Japan.) But you don't know that and neither do I. What I know if that everyone is buying bonds and no one (to exaggerate a little) is buying stocks. So I should be buying stocks. Because one day the "smart" money will wake up and buy stocks (if they haven't since the Sept 2011 anyway.) And then retail investors will pour the billions back (or not.) I don't even have to depend on that. I am getting a fatter dividend from safe stocks than I will from bonds, not to mention capital appreciation.
So, not to hit anyone over the head with it, my point is about relative over- and under-valuation. Not unpredictable panics. That's all an investor can do.

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Author: MadCapitalist Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405970 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/13/2012 10:11 PM
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Why the smart money is underperfoming?

Isn't that a contradictory statement? Similiar to; The best teams are all losing.

The point being is that if they are underperforming, they ain't all dat smart.

Maybe they were just lucky until now.

C2H5SH


So if you aren't outperforming *all* the time, then you aren't smart?

That's an impossible standard to meet.

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Author: notehound Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405972 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/13/2012 10:48 PM
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What I know if that everyone is buying bonds and no one (to exaggerate a little) is buying stocks.

It's the bigger fool theory at work. The bigger fool is the Fed - and the Fed can afford to be the bigger fool because they're able to create money from thin air (unlike everyone else) - and the Fed has promised to keep buying bonds and driving up the price with their conjured money.

Why should people take a chance on stocks, hoping a bigger fool will drive up the value of their stocks using earned money - when the Fed has already promised to keep being the bigger fool in the bond market using conjured money.

Contrarian investing only really works when the other participants in a market are using earned money. Once a participant with unlimited conjured money enters a market, it is no longer a market.

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Author: OrmontUS Big gold star, 5000 posts Feste Award Nominee! Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405973 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/13/2012 10:58 PM
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Aw, Andy's entitled to brag. That said, it is disingenuous of him to suggest that people do the opposite of what they read here. It happens to be true that my pick of BHP/B didn't do well (I still own it and think sooner or later people will start making things again with stuff that comes out of the ground). It is also true that I owned a sizable slug of Apple (which I believe was Andy's pick) until a little while ago when I sold it. This sale was due to my perception that the price was a little ahead of itself and a rationalization that paying 15% taxes this year was better than a much higher rate next year.

Over the past few weeks I've cut my portfolio by about 25% and expect its size to fluctuate significantly (based on a number of timing issues) until likely beefing it up in late February.

I'll try to get the chance to post its current composition for you to heckle tomorrow (and the profit/loss on each position if I can get that spitted out as well). I think the current unrealized gains are about 11% (which of course doesn't count what has been taken off the table or what's been paid in dividends over the year).

I am happy that Andy has done well over the past couple of years (as I plan for my next three month trip through Europe, the Middle East and Asia and back in January :-).

This is not a board designed to give investment advice, but rather discuss macroeconomic trends and risks. Any time risks are discussed, the tone, by definition, is generally negative. Trends can be positive or negative (but, regardless, there are ways to make money even if the trend is negative).

While there are many posts I skip over, I feel that it is important to read every post by a number of regulars (WendyBG, Yoda, PolymerMom and Hohum77 come to mind, but there are quite a few others others). I may agree with their conclusions or not, but their information and evaluations are valuable and to paint them with a broad brush as not worth reading is not helpful to anyone.

Jeff

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Author: Hohum777 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405974 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/14/2012 3:39 AM
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Speaking for myself only.
To be blunt, I got lucky with MED. I didn't put a single penny in it in real life.


-- Knightof3

Thanks for that input. That sorta supports my point that Androcles was misinterpreting
the idea behind the METAR contest. I am sure the thought has crossed your mind at least once
that MED should have been in your real account, right?

--

As far as my "road less traveled" comment goes, that applied to decisions I make that are
different from the norm. I have mentioned shipping ideas and developments more than a few times
over the years. With a couple of exceptions, most of the companies in the shipping sector are
generally ignored. I mentioned two ideas in my Q3 summary thread, Primero (PPP) and Christopher
& Banks (CBK), both too small for many investors. These are the basis for my "road less traveled"
comment. I will mix those things and other ideas as part of my strategy.

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Author: Hohum777 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405975 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/14/2012 3:56 AM
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While there are many posts I skip over, I feel that it is important to read every post by a number of regulars (WendyBG, Yoda, PolymerMom and Hohum77 come to mind, but there are quite a few others others). I may agree with their conclusions or not, but their information and evaluations are valuable and to paint them with a broad brush as not worth reading is not helpful to anyone.

Jeff


You framed the point much better than I could have.

--

If you have another trip coming up early next year, you have about 3-4 months to get cracking
and make things happen in your account(s). ;)
BTW, the "Bazillion" (Brazilian) idea I suggested to you seems to be holding up quite well
YTD. Still own Cosan (CZZ)?

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Author: knighttof3 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405979 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/14/2012 12:21 PM
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Why should people take a chance on stocks, hoping a bigger fool will drive up the value of their stocks using earned money - when the Fed has already promised to keep being the bigger fool in the bond market using conjured money.

Which is exactly why Buffett's philosophy of viewing stocks as part-ownership of a business makes so much sense. You don't have to rely on a bigger fool to make your stocks worth something. The earnings reinvested in the underlying business and the dividends and buybacks paid out to shareholders ensure that stocks have intrinsic value above and beyond any market manipulation.
To get capital appreciation, you do need to sell the stocks at a higher price than you bought, so someone willing to pay more than you did has to come along. But he is not a bigger fool if he is also getting adequate value in return, in the same way that you are not a fool to buy food from the grocery store even though the store is making a profit.
Bonds at current prices have such a limited upside (if any) and all the downside in the world, that you do need someone like the Fed to prop the prices up. I wouldn't call them bigger fools since any non-Fed buyer is clearly not hoping for a quick buck via bond price appreciation, but they are fools (with a small f) nonetheless.

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Author: OrmontUS Big gold star, 5000 posts Feste Award Nominee! Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405981 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/14/2012 2:26 PM
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Hohumm77, no actually sold it a while back (for a profit of about 25% if I remember correctly).

This is as good an example as any of how this group can help male money. I was reading the "coloring book" (USA Today) while away at a hotel one morning about a year ago and read two disconnected articles: The first said that the US had cut the tariff on Brazilian ethanol and thee other was about increasing the authorization of spiking out gasoline with ethanol (both arguably macro factoids). I posted a question on METAR, explaining why I was interested and asking for stock of Brazilian companies which exported ethanol. Hohum77 stepped up to the plate and suggested CZZ (Cosan). While I only had to trust the judgment of one other person (after a bit of DD, of course), I guess others would have to trust two people (myself for the idea and Hohumm for the suggested solution), but all the information was available here.

Similar discussions have taken place over the years (Wendy TIP's, my Australian currency thing, the late Sonny Page on Silver Weaton, the various gold bugs, Frank Martin's call of a market bottom and, yes, even Androcles's Apple whining) and provided ample opportunity for those who listen (and believe) to make money.

If everyone agreed on every idea, this group wouldn't provide the stimulus to thinking that healthy difference of opinion does. Andy's observation that everyone here is somehow negative in their opinions and somehow not able to make money in the stock market is not only wrong, but shows that he simply hasn't been paying attention :-)

Jeff

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Author: notehound Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405985 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/14/2012 3:46 PM
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<...any non-Fed buyer is clearly not hoping for a quick buck...>

The primary dealer banks (Goldman, JPM, etc.) certainly get a quick buck by buying at par and flipping them to the Fed for a premium.

For everybody else, of course, your statement is true.


"All animals are equal, but some animals are more equal than others."
-Napoleon the Pig
George Orwell's "Animal Farm"

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Author: AdvocatusDiaboli Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405999 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/14/2012 5:17 PM
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Markets become undervalued if people pull money out of them, and overvalued if they put money in them.

How does that work in practice? For each share that is sold, someone has to buy it.
There's no such thing as "money flowing into the stock market" or "money flowing into bonds". All stocks and bonds are held by someone at all times. The only thing that changes is who holds them, and what prices people are willing to pay to hold them.

So, not to hit anyone over the head with it, my point is about relative over- and under-valuation. Not unpredictable panics.

I don't require an unpredictable panic to sit on cash. All I need is the extremely high probability that stocks will become fairly valued at some point in the next 10 years (at least a third lower). That is what has historically ALWAYS happened.
Between now and whenever a historically normal level of valuation occurs, stock market returns will be deeply negative. I see absolutely no reason to expose myself to that.

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Author: markr33 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 406013 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/14/2012 10:24 PM
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There's no such thing as "money flowing into the stock market" or "money flowing into bonds". All stocks and bonds are held by someone at all times. The only thing that changes is who holds them, and what prices people are willing to pay to hold them.

Of course. However some aspects of this "rule" have been distorted by government/quasi-government recently. For example the supply of certain bonds is artificially lowered by the Fed buying tons of them recently. And the supply of money is thus artificially raised by them doing so.

And if the prices vary, isn't the sum total of money in them constantly changing. For example, let's say people sold 100M shares of Apple and put that money into bonds, and at the same time, that sale cause all Apple shares (~1B of them) to go down by $80. That means in effect that money flowed from stocks to bonds.

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Author: AdvocatusDiaboli Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 406025 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/15/2012 1:47 AM
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For example, let's say people sold 100M shares of Apple and put that money into bonds, and at the same time, that sale cause all Apple shares (~1B of them) to go down by $80. That means in effect that money flowed from stocks to bonds.


At the same time, some other people sold bonds and bought 100M shares of Apple, because evidently someone was holding those bonds and is now holding Apple shares.

If investor A has shares and investor B has bonds, and A sells B his shares and B sells A his bonds, where's the money flowing?

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Author: knighttof3 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 406066 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/15/2012 3:04 PM
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Markets become undervalued if people pull money out of them, and overvalued if they put money in them.

How does that work in practice? For each share that is sold, someone has to buy it.


Easy. They don't have to buy at the same price.
I paid $100 for a share yesterday. You buy it from me at $10 today. The overall stock market valuation just dropped by $90.
Prices are set at the margins, and so are market caps.

I don't require an unpredictable panic to sit on cash. All I need is the extremely high probability that stocks will become fairly valued at some point in the next 10 years (at least a third lower). That is what has historically ALWAYS happened.
Between now and whenever a historically normal level of valuation occurs, stock market returns will be deeply negative. I see absolutely no reason to expose myself to that.


To each his own. It's not a bad idea to hold stocks through a bad crash, rather than try to time in and out of the market hoping for a crash. You get the dividends/buybacks, plus you will come out ahead, even if the market drops by 1/3rd once over 10 years but appreciates at an anemic 4.2% CAGR each year (not counting the crash.)
(Math: Hold $1 now, have it drop to 67 cents, increase for 10 years at 4.2%, you will have $1.006. Inflation is ignored because cash does not increase with inflation.)

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Author: MadCapitalist Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 406067 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/15/2012 3:38 PM
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To each his own. It's not a bad idea to hold stocks through a bad crash, rather than try to time in and out of the market hoping for a crash. You get the dividends/buybacks, plus you will come out ahead, even if the market drops by 1/3rd once over 10 years but appreciates at an anemic 4.2% CAGR each year (not counting the crash.)
(Math: Hold $1 now, have it drop to 67 cents, increase for 10 years at 4.2%, you will have $1.006. Inflation is ignored because cash does not increase with inflation.)


Very true. Most investors would be better off using the Rip Van Winkle approach. They should go to sleep for 20 years and *then* check on how their portfolio is doing. Instead they get greedy when stocks are rising and get scared when stocks are dropping.

Investment professionals are not immune either:

“An irresistible footnote: in 1971, pension fund managers invested a record 122% of net funds available in equities - at full prices they couldn’t buy enough of them. In 1974, after the bottom had fallen out, they committed a then record low of 21% to stocks.”

1978 Letter to Berkshire Hathaway shareholders
http://www.berkshirehathaway.com/letters/1978.html

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Author: AdvocatusDiaboli Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 406160 of 465130
Subject: Re: Why the smart money is underperforming? Date: 10/17/2012 12:41 AM
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Markets become undervalued if people pull money out of them, and overvalued if they put money in them.

How does that work in practice? For each share that is sold, someone has to buy it.

Easy. They don't have to buy at the same price.
I paid $100 for a share yesterday. You buy it from me at $10 today. The overall stock market valuation just dropped by $90.
Prices are set at the margins, and so are market caps.


Yes, but how does that mean that "money has flown out of the stock market"? How does it mean that there is "money on the sidelines"?

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