Sun, Aloha,
Sun, you investment strategy and mine are too similar, really
liked your opening message for this forum. Similar to you, I believe
that the big growth(somewhat? synopsis with internet to me) companies will fall dramatically within six months. Eventually, people will
move towards value as growth slows. This is my sentiment, and
my technical background is not as strong as yours, but comes from
years of self-taught market knowledge.
What has been frustrating for me, is in this 'correction' some
of my value stocks have taken a beating more than my growth stocks.
I have been a closet bear for months; but moving into value ahead
of time didn't turn out to be defensive: as mark sentiment carried
them down with the Dow components. In particular you would still have
been better off in a Dow component with a P/E of 30, as opposed to
a non-index stock with P/E of 8. Particularly if the value stock
was a small-cap. This is why I believe the Big caps have not yet
felt sufficient pain for the downside to be over.
Okay, here is the question. 'If' I
believe that in the short/intermediate term the Big Caps will
rally again, but will eventually fall big, at which time value
stocks will rise, what investment strategy would maximize returns
if this were to pass?
Clearly in the short term, the big caps seem most likely to increase
in price. But if you hang onto them too long, you have moved
into growth and not value. Small caps could be very volatile and
trying for the long term investor in the short term, but may
in fact offer more value.
In line with Mike's obervation, then for the next 3-6 months, why
aren't long term calls (leaps) invested in big cap stocks potentially
profitable with built in downside risk reduction? In addition
a core holding of value stocks for the long term plus cash/bonds/money
markets of course.
Traditionally people have claimed that stocks are more safe than
options. But in a bear market, aren't leaps more conservative
than stock purchases? I read all these experts who talk about
mechanically cutting losses, aren't options the way to do this?
(As opposed to most people placing stop limit orders.)
In general I consider spreads for the professional investor
who has time and ability to react. But buying leaps(calls and puts),
or puts, stock and covered calls seem like better discipline
up front then mechanically cutting losses with stop limit orders. |
