Hi Freeus,
I will try not to generalize so that I will not be stoned into silence. I will simply speak from my direct experience:
(1) Bear markets have always struck me from out of the blue, or have escalated from what seemed like an initially tepid “correction”;
(2) Some very decisive and bold moves are called for when trying to get out of immediate danger of what later turns out to be a bear market;
(3) The only sure way to survive (as opposed to get out of immediate danger) a bear market is to stay out of the market; otherwise, dance fast steps, to frenzied music, and keep your eyes closed.
<<Tell us more about bear markets and history. What has happened in other bear markets? Have there been bear markets in a fairly robust economy such as we have now?>>
The following is a true, but specific story, one stock out of many stocks, one market out of many markets, with dates compressed, and exact prices not exact enough, because my memory failed … now, the same sort of story can be told of my experience in China, Japan, and now, I think USA. The energy feels the same, the specific causes are always different.
Day –100: SEAsia dragons well on way to conquer the world, with amazing growth rates, foreign direct investments and optimism. Korean capital and know-how dotting the China landscape. Taiwan money flooding all of Asia ex-Japan.
Day 1-30: Bangkok Bank (largest bank in Thailand – too big to fail) share price drops from peak of Baht 400 to Baht 180; all other markets healthy. Jay buys a tranche of the “next Citicorp”, remembering his much earlier and successful adventure.
Day 45: Bangkok Bank falls to 130. Jay adds more. Jay buys ThaiFarmers Bank and Bangkok Land, for all the good reasons in the world.
Day 75: Bangkok Bank falls to 90. Jay adds more. All other markets still healthy, but hesitant. Bangkok Bank is now a large position. Total position on average down basis is down 50%.
Day 100: Jay receives call from pal who takes care of 50 heavy weight tycoons in SEAsia/HK. Pal said “Jay, not smelling right. I sold everything in I have in HK”. [EDIT: MeDrrogies is right, occasionally, information is valuable].
Jay calls broker. Cannot locate. HK market closes in 30 minutes. Jay decisively orders broker’s secretary to sell all HK shares held, at market price, no questions and no prisoners.
Broker calls after market close in a panic: “Jay, did you order to sell everything?” “Yes” “Oh, good, I thought there was a mistake”.
Day 101: HK market crashes 500 points (index was at 12k, I think).
Day 115: The shares sold by Jay dropped by 30-50%. Bangkok Bank, Thai Farmers, Bangkok Land did not drop appreciably from Day 100 level. Jay sells all Thailand, buys HK shares previously sold.
Day 130: HK market bounces, the shares bought recovers 30-40% from low. Jay sells all and retreats to the side lines.
Day 145: Asian contagion spreads further, investment house in HK collapses, Indonesia tanks, …
Day 180: Russia wobbled, LTCM is as famous as KKR was, a common household name. HK Monetary Authority intervenes in stock market. Index shares chart frozen for one day as the government has standing order to buy all index shares all day.
Day 200: Bangkok Bank stock now at 35. Jay buys some more. Jay buys some Bangkok Bank US$ bonds, yielding 26%. Jay buys other bonds, all yielding above 16%.
Day 250: Bangkok Bank at 25, selling for what Bangkok Bank warrants (call options) used to sell for. Bangkok Bank bonds drops more, now yielding 28%.
Day 400: Jay buys apartment from desperate seller who seemed to be on fire.
To answer your specific questions:
<<How long until markets stabilize and its safe to buy stocks...is there an average?>>
Do not know. But figure my previous post indicates when I intend to start nibbling.
<<Do the same stocks that led before lead again or completely different ones?>>
Buy the best of each breed. No reason to go for second liners. If KO, GE, C, and AIG ever yield 5%, buy them. If CSCO, JNPR, ORCL, AOL, SNE, CHL, MSFT ever trade at book, buy them. Buy good companies at book value, 10 x free cash flow, 5% dividend yield. We are not to buy stocks that we can have fun talking about or posting about. We are to buy stocks that we can retire on.
I am not saying that these valuation targets will be realized. I am saying we have to continuously evaluate what is happening in the market place and reassess our beliefs. We have to change our dance steps with the tunes. We on this thread have enough intellect to do this play correctly, collectively.
Right now I still see folks dancing Rave to funeral music, very out of step. I want to see folks dancing slow to Rave music.
Chugs, Jay |
