thoughts (viii)

As strange as it is for me to write this, I’m now in my 45th year of watching stocks, well more than half of that dealing with foreign markets in addition to the US. During that time, there’s only one period I lived through that’s remotely like the zero-interest-rate pandemic time that we’re just exiting from.

My other experience was the tail end of the endaka period in Japan that ended in wild flurry of speculation driven by ultra-low interest rates in 1989. The final gasp upward for that speculative market was the “road to the airport” idea. Investment gurus desperate for new things for clients to buy mused that the entire 40-mile stretch of highway from Tokyo to Narita Airport, populated by a motley collection of small business complexes, plus rice fields and idle land, would soon be chock full of skyscrapers testifying to Japan’s economic might.

Yes, there has been considerable development since then, but nothing like 50 miles worth. Almost 35 years later, the dream from back then has yet to come true, and the currency has lost a third of its value vs. the dollar, to boot.

It seems to me that the first step we should take is to go through our holdings with an eye to rooting out similar “story” stocks that may be lurking in some dark corner of the portfolio.

Apart from that, the biggest task for us as investors, to my mind, is to form an opinion about what I’ve been calling trading bot activity. In every bear market, investors’ investment horizons contract. We’re no longer willing to pay for company earnings two years out, or even one. We play our cards close to the vest and we hold fewer cyclical or secular growth names. “It won’t go down much” replaces “this could go up a lot if things go our way.” In the US in the past, however, market sentiment shifts in a positive direction maybe six months before reported earnings start to improve. This is one of the reasons that the stock market is one of the best leading indicators of domestic economic activity.

Looking at recent trading, it seems to me that the market is only reacting to developments once they are publicly announced, rather than anticipating them beforehand, and selling off in a much more negative way than I think the facts warrant. One possibility is that I’m completely wrong, either about valuations or that the overall macroeconomic environment is close to as bad as it’s going to get–and things are actually worse than I perceive. The other is that the market is, at least for now, being driven by newsfeeds rather than securities analysis–and that most potential buyers have left the field until there’s tangible evidence that this period of aggressive selling has come to an end. In the latter case, there’s an opportunity to buy.

Yes, I think it’s important to have an opinion. Mine is that it’s bots ..and that they’re doing loony things. On the other hand, there’s nothing that compels me to make what I’ve decided into the centerpiece of my investment strategy. And it isn’t.

more on Monday

Leave a Reply

%d bloggers like this: