When to Sell?

The common thread running through the collective minds of present U.S. stock market investors goes something like this: A great crash is coming.  But first there will be an epic run-up climaxing with a massive parabolic blow off top.  Hence, to capitalize on the final blow off, investors must let their stock market holdings ride until the precise moment the market peaks – and not a moment more.  That’s when investors should sell their stocks and go to cash.

 

The DJIA over the past two years – the recent blow-off move has catapulted the average way above its 200 day moving average. As we recently pointed out, the DJIA has posted unprecedented overbought readings in longer-term time frames and we suspect that the distance from the 200 dma it recently reached was quite a rare extreme as well. By itself, none of this would be overly concerning, but in conjunction with foaming-at-the-mouth bullish sentiment, stretched valuations and a sharp slowdown in money supply growth, it is hard to be anything but concerned. [PT]

 

Certainly, this sounds like a great strategy.  But, practically speaking, how are you supposed to pull it off?  Specifically, how are you supposed to know the exact moment the stock market peaks?

Is the definitive sign of the top when your shoeshine boy offers you a hot stock tip?  Is it when your neighbor tells you about his surefire strategy to juice his returns by shorting the Volatility Index (VIX)?  Is it when your early morning gym acquaintance proudly boasts how he just purchased a luxury pair of Sea Doos using something called a “portfolio line of credit?”

From our perspective, these examples and many more – like extreme valuations – would suffice as conclusive signs of the top.  But what do we know?  We thought we saw the top four years ago, and every year since.  If we had trusted our gut, we would have missed out on significant gains. What to make of it?

 

Meaningless or Meaningful

Roughly five years ago one of our more challenging clients told us in painstaking detail that our significance, in the grand scheme of things, was that of a gnat on an elephant’s ass.  This insightful comparison was generously delivered moments after we were accused of big jobbing his venture.  Naturally, we grinned and thanked our client for this novel compliment.

The point is, on Tuesday the Dow Jones Industrial Average (DJIA) dropped a full 362 points.  This amounted to a loss of 1.37 percent and was the second biggest single day decline since President Trump was elected.  For a moment, a touch of panic enveloped Wall Street [it has blossomed since then – PT].

 

Investor nightmare Nikkei 225 – three “lost decades” and counting. So far it is still better than the 68 year long bear market in European stocks after the collapse of the Mississippi and South Seas bubbles. It is astonishing that it has taken the index so long to show some serious strength again, considering Japan has a fiat money system and a central bank that never shied away from trying to print the country back to prosperity. [PT]

 

Yet in the grand scheme of things, a 1.37 percent loss has the significance of a gnat on an elephant’s ass.  It is utterly meaningless, next to nothing. But how did you deal with it?  Did you panic?  Did your stomach tie in knots?  Did you sell out of some of your positions?  Or did you brush it off?

Remember, a 1.37 percent loss may be meaningless.  But it could also very well be the start of something meaningful.  In short, are we now past the peak?  Did the blow off top already occur?  Will the January 26th DJIA record close of 26,616 end up being the ultimate top of this bull market?

These are the questions.  But what are the answers?  As of market close on Thursday, the DJIA had yet to approach its January 26th peak.  What if it doesn’t set a new record high for another 20 or 30 years?

Sure, given the DJIA had over 70 record closes in 2017, this is hard to believe. Of course, no one thought it would take nearly 15 years for the NASDAQ to reach a new all-time high after it peaked in early-2000.

And if you recall, the Japanese Nikkei hit close to 39,000 in early 1989.  Nearly 30 years later, and in an era of mass currency debasement, the index has barely scratched its way back to 23,000.

Unfortunately, at present, there’s no way to know if the DJIA has peaked or not.  It may bounce up and hit a new high tomorrow.  Or it may not.

What we do know, however, is that the popular strategy to hold stocks through the blow off top and then sell the precise moment the market peaks is premised on the flawed idea that you’ll be able to guess the correct time to sell.  So what should you do?  Should you buy the dip?  Should you sell the drop?

 

Long term valuations as measured by the Shiller P/E ratio – not exactly the most comforting of charts, considering the less than encouraging precedents. Note that the even more extreme reading in early 2000 was skewed by the moves concentration in a relatively small number of large cap tech stocks. Valuations may remain lower in terms of a cap-weighted index like the S&P 500, but these eye-bleed valuations are far more broadly distributed. [PT]

 

The correct answer, no doubt, is different for each individual.  Unquestionably, there are worse things you can do than sell out of some of your stock market positions and take profits at this late stage of a 9 year bull market.  You’ll have already locked in significant gains and will be able to put the extra cash to good use when the impending bear market drags valuations down to bargain basement levels.

But what else can you do?  Again, the correct answer is different for each individual.  However, with a little imagination a vast array of opportunities come into focus.

 

How to Buy Low When Everyone Else is Buying High

By all accounts, a tried and true method to accumulating investment capital is to buy low and sell high.  Conversely, a guaranteed system for losing money is to buy high and sell low.

Buying an S&P 500 index fund, at this moment, amounts to buying high.  So, perhaps, that’s not a wise idea.  Alternatively, it may be wiser to buy something that amounts to buying low.

 

Lettuce give some love to the legumes… we once walked with Jim Rogers across the inner city of Vienna in search of a famous local craftsman, and we still remember his brisk walking speed (we were soon out of breath) and the wide range of topics we discussed in a relatively short time, ranging from the potential for social unrest in the wake of the banking crisis to the situation in Zimbabwe. Commodities were definitely a topic as well. [PT]

Photo via blog.perfarm.com

 

For example, several weeks ago legendary investor Jim Rogers – a man who knows a thing or two about buying low and selling high – mentioned that now is the time to invest in the “disastrous” agriculture sector.  Rogers’ logic is quite simple – the world is running out of farmers at a time of increasing food demand:

 

“No one wants to be a farmer anymore, as compared to the past, when farmers were like masters of the universe for a long period of time. The agriculture sector has been a disaster for 35 years.  Things are so bad.  The average age of an American farmer is 58.  The average age in Japan is 68.  And do you know that the highest suicide rate in the UK is in the agricultural sector? There will be an imbalance in the future between demand and supply in agricultural commodities… and that will drive prices higher.”

 

Indeed, Rogers is on to something.  Yet, like most everyone else, we don’t want to be farmers.  However, that doesn’t mean we cannot be armchair farmers.  In fact, it is possible to participate in the potential agriculture boom without planting a single seed.

 

DBA weekly, since its introduction in 2007. From hero to zero – the ETF was launched shortly before agricultural commodities peaked in the final stages of a mad-cap rally that saw numerous prices reach new all time highs. Almost all agricultural futures were in backwardation during the blow-off and the contract roll often provided merriment by producing what looked like painful short squeezes. The bears sure did get their revenge though, shortly after they had been wiped out. From a longer-term perspective the sector is beginning to look like a potentially sound prospect – after all, something is always entering a bull market, and it is often whatever has done badly while other assets bubbled into stratosphere. [PT]

 

You can do this simply by investing in the PowerShares DB Agriculture exchange traded fund (ETF) (NYSE Arca: DBA), which invests in a basket of commodities, including corn, wheat, soybeans, and sugar futures contracts. Presently, this ETF trades at about $19 per share. A decade ago, it was over $41.

For those with the conviction and patience to let the agricultural cycle play out, this is a modest alternative to mindlessly buying the S&P 500 index like everyone else. In other words, you can buy low rather than buying high.

 

Charts by: StockCharts, BigCharts, Stock Board Asset

 

Chart and image captions by PT

 

MN Gordon is President and Founder of Direct Expressions LLC, an independent publishing company. He is the Editorial Director and Publisher of the Economic Prism – an E-Newsletter that tries to bring clarity to the muddy waters of economic policy and discusses interesting investment opportunities.

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

4 Responses to “How to Buy Low When Everyone Else is Buying High”

  • Hans:

    https://www.youtube.com/watch?v=ET47OtuZZkQ

    It must be ganja day on Wall and Broad today.

    • M.N. Gordon:

      Cool video. That sums it up. After many years of only going up, Wall Street is rediscovering how gravity works — that markets go both up and down. A little Mary Jane adds to the mood swings. Let’s see what else the week brings!

  • Hans:

    “we once walked with Jim Rogers across the inner city of Vienna” disgusting “banking crisis to the situation in Zimbabwe” Good thing no manholes were open.

    With another 5% drop and another Blackish Monday, there are several
    more Gnats on the postery of Mr Dumbo. And Dumbo Jr, was invested at
    the highest level (80%) since 2011. Mrs Dumbo, is throwing cow chips
    at me and threatening to leave for a zoo near you.

    Shockingly, the S&P500 since 2001 of July, has returned only 111%
    ending, 31th of January 2018.

    Yes, DBA, is cheap but I strongly suspect it underperforms many
    indexes. Perhaps adding ganja could boost it’s returns.

    https://finance.yahoo.com/quote/dba?p=dba

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Stock Market Manias of the Past vs the Echo Bubble
      The Big Picture The diverging performance of major US stock market indexes which has been in place since the late January peak in DJIA and SPX has become even more extreme in recent months. In terms of duration and extent it is one of the most pronounced such divergences in history. It also happens to be accompanied by weakening market internals, some of the most extreme sentiment and positioning readings ever seen and an ever more hostile monetary backdrop.   Who's who in the zoo in...
  • All the Makings of a Major Economic Fiasco
      Mud Wrestling: Trump vs. Xi About 6,940 miles west of Washington DC, and at roughly the same latitude, sits Beijing.  Within China’s massive capital city, sits the country's paramount leader, Xi Jinping.  According to Forbes, Xi is currently the most powerful and influential person in the world.   Papa Xi, the new emperor of China. [PT]   Xi, no doubt, is one savvy fellow.  He always knows the right things to say.  He offers the citizens of his nation the...
  • How the Global Trade Contraction Begins
    Historical Evidence The world grows increasingly at odds with itself, with each passing day.  Divided special elections.  Speech censorship by Silicon Valley social media companies.  Increased shrieking from Anderson Cooper.  You name it, a great pileup is upon us.   It was probably Putin's fault (just a wild guess) [PT]   From our perch overlooking San Pedro Bay, the main port of entry for Chinese made goods into the USA, facets of the mounting economic catastrophe come...
  • TARGET-2 Revisited
      Capital Flight vs. The Effect of QE Mish recently discussed the ever increasing imbalances of the euro zone's TARGET-2 payment system again in response to a few articles which played down  their significance. He followed this up with a nice plug for us by posting a comment we made on the subject. Here is a chart of the most recent data on TARGET-2 available from the ECB; we included the four largest balances, namely those of  Germany, Italy, Spain and the ECB itself.   The...
  • When the Freaks Run Wild
      Conditioned to Absurdity The unpleasant sight of a physical absurdity is both grotesque and interesting.  Only the most disciplined individual can resist an extra peek at a three-legged hunch back with face tattoos.  The disfigurement has the odd effect of turning the stomach and twisting the mind in unison.   Francesco Lentini, the three-legged man. Born in Sicily in 1881 with “three legs, four feet, sixteen toes and two pair of functioning genitals” he made a career of...
  • Gold Sector – An Obscure Indicator Provides a Signal
    The Goldminbi In recent weeks gold apparently decided it would be a good time to masquerade as an emerging market currency and it started mirroring the Chinese yuan of all things. Since the latter is non-convertible this almost feels like an insult of sorts. As an aside to this, bitcoin seems to be frantically searching for a new position somewhere between the South African rand the Turkish lira. The bears are busy dancing on their graves.   Generally speaking bears have little to...
  • Separating Signal from Noise
      Claudio Grass in Conversation with Todd “Bubba” Horwitz Todd Horwitz is known as Bubba and is chief market strategist of  Bubba Trading.com. He is a regular contributor on Fox, CNBC, BNN, Kitco, and Bloomberg. He also hosts a daily podcast, ‘The Bubba Show.’ He is a 36-year member of the Chicago exchanges and was one of the original market makers in the SPX.   Todd “Bubba” Horwitz and Claudio Grass   Before you listen to the podcast, I would like to...
  • What Have You Done For Me Lately? Precious Metals Supply and Demand
      Aragorn's Law or the Mysterious Absence of the Mad Rush Last week the price of gold dropped $8, and that of silver 4 cents.  There is an interesting feature of our very marvel of a modern monetary system. We have written about this before. It sets up a conflict, between the perverse incentive it administers, and the desire to protect yourself in the long term.   Answer: usually when it is too late... [PT]   Consider gold. Many people know they should own it. They...
  • The Midas Touch Gold Model
      Introductory Remarks by PT Dear readers, we are hereby beginning to publish material from a new author, Florian Grummes of Midas Touch Consulting. Some of you may already know Florian from his contributions to recent issues of the annual “In Gold We Trust” report by Incrementum. He is a well-known and highly respected market analyst (particularly of gold and cryptocurrency markets) in the German-speaking parts of the world and we hope we will be able to contribute a bit to making his...
  • An Inquiry into Austrian Investing: Profits, Protection and Pitfalls
    Incrementum Advisory Board Discussion Q3 2018 with Special Guest Kevin Duffy “From a marketing perspective it pays to be overconfident, especially in the short term. The higher your conviction the easier it will be to market your investment ideas. I think the Austrian School is at a disadvantage here because it’s more difficult to be confident about your qualitative predictions and even in terms of investment advice it is particularly difficult to be confident in these times because we...
  • Climbing the Milligram Ladder - Precious Metals Supply and Demand
    FRN Muscle Flexing Shh, don’t tell the dollar-paradigm folks that the dollar went up 0.2mg gold this week. Or if that hasn’t blown your mind, the dollar went up 0.01 grams of silver. It’s less uncomfortable to say that gold went down $10, and silver fell $0.08. It doesn’t force anyone to confront their deeply-held beliefs about money. But it does have its own Medieval retrograde motion to explain.   Even the freaking leprechaun is now offering government scrip...  this really...
  • Introducing the Seasonax Web App
      Closing the Affordability Gap Up until recently, the Seasonax app was only available to users of Bloomberg or Reuters terminals, putting it out of reach of most non-institutional investors. This has now changed. A  HYPERLINK "https://app.seasonax.com/"web-based version has become available which anyone can use, and it comes at a much lower price point as well. When visiting the site where the app is hosted, this is the welcome screen:   Featured patterns at the Seasonax web app...

Support Acting Man

Item Guides

j9TJzzN

The Review Insider

Dog Blow

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com