KM - I admit to not doing technical analysis (it's not that I don't believe in it - with my work, I've never had the time to learn the intricacies of it - but I hope to do so at some point). So, I can't say I called a market top in April.
I do quite a bit of what I would call "fundamental" analysis - which entails a lot of reading of most major business and technical publications (and many books), as well as analysis of company financial statements. I never invest in companies in which I lack the knowledge to assess their business model.
In the latter parts of last year and the early parts of this year, I got caught up in investing in many of the internet stocks - I was driven by greed, and I made a lot of money - but the whole while, I believed that such stocks were over-valued and that it was only a matter of time before they crashed. In April, I made two bad trades - buying YHOO and AOL very close to their all-time highs - my purchase coincided with price target increases by major investment banking analysts (Blodget and Meeker, I believe it was). I saw both stocks decline rapidly in the weeks that followed - I got out before losing too much - but the experience of buying two stocks that were so highly rated (by respected institutions no less) only to see them fall rapidly made me realize that the market was not on real solid footing. And I also began to realize that I was profiting from greater-fool investing - yet, I knew that fools eventually get wise.
When we got our first interest rate hike in June, I started pulling back more on my long positions - and I sold most of my other long positions in mid to late July.
From a fundamental perspective, I see too many uncertainties in the market at the moment - overpriced stocks, high margin debt, threats of foreigners withdrawing capital from the US, high retail spending, record levels of personal and corporate debt, low saving rates, continued interest rate worries - you name it, all of these, in my mind, point to a lot of risk.
The market may go up - on momentum. I prefer not to be a momentum investor - as I believe that a stock price does have to relate to something tangible. And I don't want to invest on the greater fool theory - if you give any credence to game theory on a social level, then you would believe that long-term reliance on greater fools would eventually lead to doom.
Thanks,
-Eric Wells |
