Though the market has been in a pronounced decline for a week and a half, and though most stocks are already in a bear market, today was the first real fear I have seen as an institutional investor. Getting calls from brokers asking "what's going on, when are you going to buy" (and laughing at them, reminding them of the fate of their last buy recommendation!). Its fun being a value investor on a day like today, being totally at peace with the world. ABC News led with the stock market story tonight, which is usually the sign of a bottom. But unlike before, they didn't have the soundbite of the expert saying "buy the dips", they had a soundbite of the expert saying "diversify [read: sell] now".
I think this may be the big one. (And by that I mean a 30-40% decline) - we're talking a Dow with a 5 or 6 in front of it. To me it looks very different from past dips. The valuations were extreme then, but you still had profit growth. When you cut through the smoke, what you are looking at now is a market trading at more than 20 times earnings, when nobody can make a credible argument for profit growth more than low single digits. Sure, interest rates are low, but a high multiple assumes both low interest rates and double digit profit growth.
Tomorrow probably starts just as today did, with buying on the dips - a relief rally (the Dow started up 60 points today and finished down 300). If tomorrow starts down (Asia is going to be brutal overnight, so it very well may), then Houston, we've got a problem. Three times in this decline, the smug "buy the dips" guys have bought their dips and gotten smacked. Eventually they either run out of cash or confidence, then look out below. I'm having fun with this. My boss was very upset with me today because I was having so much fun watching the market go down. I missed the November crash last year because I was on vacation - I didn't even know about it until the next afternoon when I saw an Italian newspaper with the headline "Il Crashico" or something like that.
Though admittedly, I've said this before just before the market rebounded to new highs...
And...Amazon was up today. Go figure. |
