Ben I have a question for you. Do you think the demographic baby-boomer spike is driving this sell-off? There is an abnormally large percentage of investors nearing retirement age and I imagine many of them are saying "FUCK I can't watch my retirement funds meltdown any further, I gotta get out." If so, what does that mean for the recovery? Will it be quick or fucking slow as in the 30s and the 70s. Optimist that I am, I'm betting it will be quicker.

Also, I'm in this group and have had thoughts about selling, even cutting off my favorite puta, but I'm quite capable of being a broke beach bum and once in a while going for SGs, minimialista that I am.

I think that people are just starting to retire from the baby boomer group and most are still working ang contributing to their 401k's, etc.

I also think that people in all age catagories that never really understood are were really comitted to stocks have or are bailing out of the market. No logic just panic selling. Happens all the time.

We will look back on this period like we always have as buying opportunities for those who believe in the market and know that time solves all problems, not timing.

This bear market isn't a big deal and it is something that happens all the time. Long term investors just keep buying and the stocks of well managed value companies are great opportunities at these prices.

Obviously there are strategies you can use to help on the down side, but just invest for the long term in quality companies that make money and have lots of assets. There are many companies that are doing just fine right now.

The baby boom is officially 1946 to 1964, so the first year folks are 56 with a 4 or 5 year time horizon. So they're short timers in market terms and should be moving out of the growth stocks, gradually. I think demographics is (are?) a big factor.

How does it factor in? Well the bazillions of dollars that went into the market in the mid to late 90s were baby boomer dollars, in the hopes of a FAT retirement, and now they're coming out just as quickly as they went in, in the hopes of A retirement. Maybe it's the same old sinusoidal pattern, but the frequency is higher. Aren't things happening quicker?

MY bet is for 7500 Dow in two months, back to 9000 by Christmas. Sorry, guys. I'm buying puts this year.

How about the effects of on-line "investors" who came in mid- to late- 90s without much knowledge of market? My broker was once joking janitors who work for his office were investing on line. I assume most of them are gone by now. Although these are the exact people who might come in when the market goes up again, some of them may have been burnt too severely to ever come back.

Ben
I am a lousy gambler so gambles little. But looks like a lousy investor as well. So I am working and invests mostly in pussies these days.

Today was unusual and a turnaround that sharp probably means the market will rally now for the short term. But even if it does I would expect prices lower than today's low in a month or three.
There are folks who think this will be worse than 1929-1932 and DOW will go to 1000 or below! I have been playing the short side quite well in bear mutual funds but I got out last Tuesday expecting a bounce.

There's supposed to be a hemline indicator - the shorter skirts get the more bullish - how are hemlines in TJ this year - are those babes dressing as sexily as ever? If they all start wearing pants watch out for the crash!

It is the end of the world as we know it. IT IS THE END OF THE WORLD!!!

now would be a good time to panic and sell all yer stocks. Buy high, sell low, that's what I always say.

Gotta go get my ticker-tape machine polished.
Dogster

"You know, some days I get up and I want to tap dance." - Warren Buffett in the summer of 1973, after a market drop of 20 percent.

"Men occasionally stumble over the truth, but most of them pick themselves up and hurry off as if nothing happened." - Winston Churchill

Ben:

What you are saying is that in the long term, the market will come around. This is true now, and was true in 1929.

However, the question remains, how long a term are you envisioning? Or more to the point, where is the bottom?

Nobody including Alan Greenspan knows the answer to where is the "bottom". I am sure you remember when AG said that there was "over exhuberants" in the market and the Dow was in the 7000 range at the time. Dow went up another 40-50% from that point, My numbers are rough estimates and not accurate, but the point is AG couldn't guess the market.

I think the market is always very dangerous and I usually buy a stock with the idea that I may own it for 10 years.

Yesterday I bought 500 shares of PFE at $27.45 a share. Today I sold the August 30 calls for $500 and reduced my risk down yo $26.45 per share. I could have been more conservative and sold the August 27 1/2 Calls for $1175 ($2.35) a share and lowered my risk even more. Now that is not necessarily long term investing, but if the stock is not asigned in August, I would not mind owning PFE for the next 10 years.

Explorer8939,

I tried to offer a rational based on the baby boomer demographics that the turn-around should be quick because at the outside the leading edge of BBs have a 10 year time horizon. They'll buy just as quick as they sold. Of course my thinking is clouded by questionable logic and hope.

Nobody knows, there's just too many variables, otherwise you could predict the market and then it wouldn't exist.

I'm going to make an appointment with my broker, Ben you'll be glad to hear I have a PM account, and discuss reducing my 40% cash position over the next 2 quarters.

There are so many factors that effect the market.

Fundementals, technicals, micro and macro economics.

I do think there is some validity in Dents books about demographics and baby boomers. At least his charts certainly show a parallel between bull markets and periods when the over 50-60 crowd is growing.

Ultimately I feel earning is a hugh factor and over the next year I think earning are going to look very good by comparison to 2001 earning.

Two simple, but true observations:

If the economy continues to grow and corporate earning continue to rise, stocks will go up.

Ted Williams said the trick to hitting is to hit good pitches.

Interesting day. Lots of phone calls.

One guy called me today to buy stock for the first time in maybe 6 years. he bought 100 shares of QCOM about 10 years ago at $30.

Now has 800 shares because of stock splits and worth around $24,000. Not a bad return as worth 8 times what he originally invested 10 years ago.
Of course 2 1/2 years ago he could have sold it for $160,000.

I wonder if it will ever get back to $200 per share?

I realize that some people consider this to be a Great Buying Opportunity, but my personal view is that IF the market keeps dropping into next week, well, we will be in for a long, hard road for the rest of the decade.

Not that what happens in 10 days or so of trading is that significant, but rather the overall trend of the market for the last 2 years, and the reality that the economy as a whole follows the movement of the market, albeit delayed 6 months. The market generally leads the economy out of recessions, which is good, but also leads the economy into recessions, which is bad. What's worse is when the econony is already in a recession, and *then* the market slumps.

"You know, some days I get up and I want to tap dance." - Warren Buffett in the summer of 1973, after a market drop of 20 percent.

The last time we had a long bear market was the 70's.

We had many economic problems that the government could not fix by lowering interest rates.

We had double digit inflation, Oil at over $30 a barrel which would be the equivilent of $100 a barrel today, High unemployement, A terrible war, A President that had to resign from office, Jimmy Carter who hired the dumbest and then the smartest Fed Chairman we have ever had, Japan kicking our ass in everthing from steel to automobiles, The threat of missles from Russia..

Today we have few deep seated economic problems as compared to the 70's.

I think we are in a period of great opportunity to buy stocks cheap. We may not be at the bottom, but i think we are close.

That being said, no one really knows for sure where the market will be over the next few years.

LONG TERM INVESTING solves the problems of timing the market, but most people will not accept the pain for the gain.

By the way, I have a bunch of 1954 baseball cards that have gained more value in the past 5 years than they did in the previous 42 years.

Just so damn proud of my suggestion to buy ARXX on July 5th at $6.69.

Of course you would have had to pay 1.5% if you bought it from me .10 per share. On the other hand, how many stocks are up 13.75% over the last 10 days.

Benwhosometimesgetsverylucky

Whoa,

ARXX now at $7.99.

I just put in a stop loss at $ 7.75.

That will cover a few TJ expenses.

By the way I WOULD NOT buy this stock at this level. It is selling for 150 times earning and I have no idea why it has moved up so much. Must be something going on.

I bought it because the premium on the calls was so attractive a couple of weeks ago. I had no clue the stock was going to move up.

Sometimes it is better to just be lucky.

Below is what I did yesterday as I was preparing for my TJ trip:

Options Account
Pfizer
Price
Date Description Price Per Share

7-15-02 Bought 500 Shares PFE $13,725.00 $27.45

7-16-02 Sold 5 Aug 30 Calls ($495.00) ($0.99)

7-16-02 Net Cost Per Share $13,230.00 $26.87






If Shares Are Called on August 16, 2002

Net Profit From Stock $1125.00
Net Profit From Options and Dividends $495.00
Net Profit $1620.00
Percent Return Days 12.24%
Annual Percent Return 31 Days 142.14%

For some reason my format changes when I copy and paste these worksheets. The columns do not line up.


Benthecoward

I mentioned a bank stock some time ago- NYCB

Quarterly earning came out today and they beat estimates and managements states they will beat earnings estimates for the rest of this year.

I bought 500 shares in March at $28.52 and another 500 shares in June at $27.70.

It was at $28.28 high for the day and has been as low as $27.30 today. I just bought another 500 shares at $27.71.

It pays a 3% dividend and earning have grown by over 60% this quarter as compared to a year ago. Earning are misleading as they have been acquiring many smaller banks over the past two years, but I think the future is bright for this thrift.

BUYER BEWARE AS YOU COULD LOSE ALL YOUR MONEY IN THIS STOCK. THIS IS NOT A RECOMMENDATION FOR ANYONE TO BUY THIS STOCK.

OUCH,

NYCB now at $26.85

benestriste

Out on ARXX at $7.72.

Nice little profit!

Hey Ben, you call that cowardly? Wait until you hear my strategy. I am starting to put into practice my plan of buying stocks rated timely by Value Line whose market capitalization is at (or reasonably near) the value of their assets, have little or no long term debt, and a P/E ratio of approximatley 25 or below, and then selling call options with a strike price near my entry. I intend to continue to sell new call options for income as they expire, until assigned.

My thinking is that stocks selling near their intrinsic value with no debt aren't likely to plunge in value for lengthy periods of time, and that even in the event of stagnant or long declines, the money I make selling call options should make my investments worthwhile, on average. If I can make an average of just $30 a month on every $1,000 invested with this strategy (which I hope is a conservative estimate), that would result in an annualized return of 36%, which isn't bad, compounded over time.

I may be full of shit, and maybe this strategy is a loser (or gives up too much in opportunity cost), but I think it shows promise. Anyway, this strategy is my own brainchild, with bits and pieces stolen from the writings of (and commentary on) Graham, Buffett, you, others, and my own personal observations and study. Of course, it also boldly rejects some of the ideas of Graham, who was highly critical of derivatives. It's obviously not a get rich quick scheme, but I've been burned enough times in my lifetime to know that those simply do not work. Now I am just looking for good conservative compounding gains.

As far as "cowardly" goes, cowardly is just good strategy. As Sun Tzu pointed out, you should only attack when victory is assured. George H. Bush very capably put this philosophy into practice in Desert Storm, and I have come to believe that what propaganda slingers call "cowardly" is really just good, sound planning and execution.

Any commentary, advice, and/or criticism would be greatly appreciated.

Ben,

My broker suggested Sempra Energy and Oracle. What are your opinions on these?

First for me to be mentioned in the same sentence with Graham probably has him rolling over in his grave. Buffet tambien, if he were dead.

I think PE's of 25 are historically to high for value stocks as you describe, although if there are other reasons such as rapid growth of earnings, you might justify the higher PE's.

I also am very suspect of stocks that are selling for their intrinsic value unless they are a turn around company with new management, etc. Why would good companies be selling for their intrinsic value unless people believed there was a problem in the future with the company.

I was looking at a REIT last week that is yielding over 14% in dividends, payable quarterly. One would assume there is a problem with the stock or why isn't the price of the stock at least double its current price.

All of the above being said, I do think you have some good ideas in your strategy.

Remember you are going to sometimes lose money even with your best ideas and make money with some of your worst ideas.

Kendricks,

I forgot.

If you can make 3% a month or 36% a year for the next few years, you can write a book that will be a number one best seller on the New York Times list and make millions selling books.

Only "The Brothers" can make 36% per year and it looks that their business has been shut down

Ben, I thought you were named after Ben Graham???? That book deal really does sound good - I should probably start writing it now, so it will be ready to hit the presses after I've made my 36% compounded profits over the next few years. LOL...

Anyway, my idea of a good stock to try something like this with is STK. Trading at 15.25, rated 2 for timeliness by Value Line, P/E of 20.89, P/B of 1.54, Aug 15 calls bid at 1.15, 484 M cash on hand, and only 9 M long term debt.

Although it may certainly dip, it seems unlikely to me that this stock will lose most of its value and never recover. If it goes up, I make money on the premium. If it goes down, I keep the premium, and continue to sell options with a strike price of 15 until it rises again (if it drops too far, I could always sell options with a strike price of 12.5, after I have made a couple hundred in premiums). Given its fundamentals, I do not think a complete collapse is likely.

I'm sure I'll hit some rough spots, and I have some refining to do, but I do believe I'm onto something (even if the consistent annual return is less than 36%). Time will tell, I suppose.

I also like HH a lot. Solid company, highly rated by Value Line, lots of cash, almost no debt, ratios a little higher than I like, but attractive call prices relative to the price of the stock. Since it's trading at only 7.6, even in case of a steep fall, most of the principal could be recovered in a relatively short period of time.

If the market holds steady into the beginning of next week, I think I'm going to step off the sidelines, and start putting my ideas to the test.

Well, today the S&P closed below 900 for the first time since 1997. I agree with ben that trying to catch the precise bottom is not possible, but I think it may be better to wait for a turnaround, and some evidence that a bottom has formed, than it would be to catch a falling knife.

Any other opinions?

Kendricks,

Just like eating, take little bites, slowly, lots of variety. I'm getting anxious to lower my cash position but my broker is "thinking about nibbling a bit." It will be interesting to see what he does over the rest of the year.

The ultimate doomsday scenario is Detroit falls apart and the real estate bubble pops. Just a nasty thought.

Quien sabes? I sure don't.

As I said, if the market continues downward through the end of next week, you all can expect trouble for a good part of this decade. I can't recall a similar downward trend since the Fool's Rally of 1930-1931.

I purchased 400 shares of Baxter International(BAX) aka Baxter Labs on April 18 for a little over $57 per share. On Wednesday it was down to around to around $43 and I was kicking my self for not having put in a stop loss in at $50. Today the market open with Baxter not trading. Finally opened and closed at $32. I was so damn disgusted that around 12:00 I closed my eyes and bought another 400 shares at $34 and some change.

I was so pissed that I then went to Tijuana and had a wonderful late lunch at Casa Plasenia over near where Baster 1 lives and then took my lunch partner to Los Pinos. I later went to la Tropa and I think I met my new Sweetie Pie.

So I got fucked three times today. Baxter, Lupita, and lets just call her Sweetie Pie.

Very expensive day.

So I got fucked three times today. Baxter, Lupita, and lets just call her Sweetie Pie.


LOL....great post.

It will come back..it always does.

Everyone I work with is talking about how the real estate market is the place to be right now, and how it will continue to go up from here, since "they just aren't making any more land!"

Sounds to me like we are in for a pretty hard fall in the real estate market before too long....

Be a Contrarian. I guess you are one, come to think of it.

Yes, Ben, I am a Kentrarian. I was actually right about the Dow being determined to break 8,000 on the downside, too.... I think this is an excellent opportunity to jump into some value stocks.

Good news, Ben - I just heard some commentary on the radio that everyone should liquidate all of their positions now, as the market is going to continue to fall.

That Sam guy was telling us how much $$ he was making off Budget Rent a Car, since he figured out some trading pattern in which the share price always ticked up at the end of the day.

Not today: http://finance.yahoo.com/q?s=BDGPA.OB&d=c&t=1d&l=on&z=b&q=l

I guess this guy won't be in TJ for a while. Another casualty of the market.

BDGPA dropped from 18 cents to 17 cents today. Even if he bought in at the days' high (which he wouldn't have done, since his method involved buying intraday dips), it's only a 5.56 percent drop.

I guess Sam makes it up on the volume, then.

If next week is negative, as well, then Ben will have to start working for a living. I don't expect that next week could possibly be as bad as this week, but even if it is just bad, ie 50 points down or so per day for the whole week, then we are in for the investors' nightmare - a long term bottom.

Everyone expects that the market will recover after hitting the bottom, so everyone is looking to invest at the bottom. The problem is that no one is confident that any one dip is The Bottom, so no one is putting in their money, they are all waiting for a two or three rally that shows that the bottom has been reached, and things are moving up.

However, if the market is down for another week, people won't care anymore, they will simply run from the market as fast as they can.

Ldvee said on June 27:

"When you think about what has happened in the past 12 months, 9-11, Enron, WCOM etc, a dramatic military policy shift to first strike, ending of pro-forma, I think you would have to admit that we've been hit pretty hard and responded admirably. I like it. I'm averaging in. (if the 4th goes well) "

One less monger.

On June 30, TaxiBob said:

"The market is oversold and big money isn't stepping up yet.4th of july's often marks a trend reversal into Labor day.If the market holds last wednesdays lows on the retest I'm going to consider some bottom picking.As earnings come out they don't have to perform that well to look good compared to the same fucked quarter last year.Maybe some of John Q. Public y associados will hop in at this juncture.We know they are just waiting for some reason or sign of hope to hop on in.
Ben for options if the QQQ's hold 24 1/2 this week or if big blue holds 67 then consider calls .Also if the SPX holds 951 look north. "

It's amazing that someone could know all that stock techno talk and still be so wrong about the direction of the market.

Another monger bites the dust.

Well.. IBM is at 72 :-)

Explorer,

No I didn't bite the dust and am looking forward to my weekly weekend trip to the zone. The 4th didn't go well for me. A rather large holding of mine hit a 52 week low on the 2nd or 3rd, and it's lower now. Still sitting on the cash position, waiting. Not selling, not buying, just waiting. 3 accounts, 2 professionally managed, 1 that I play with. All losing, what fun!! JNJ looks awful tempting.

My company's retirement plan statements came out this week and several of my co-workers decided to sell their mutual fund investments because of their losses, and therefore lock them in. I don't get it, especially on accounts with long time horizons. But it sure appears there's plenty of that going on. I suppose it's OK if these people remember to get back in when the pendulum starts swinging back.

BTW, your comment about TaxiBob "It's amazing that someone could know all that stock techno talk and still be so wrong about the direction of the market." What's that all about?? The last thing investors need after a week like this is some wise ass thinking he's smart because someone made a statement about the market that didn't turn out.

My point is that *no one* knows the direction of the market, for sure, despite any amount of training.

My predictions are based on a feeling, not any technical knowledge.

BUT, people use all sorts of gobbeldy-gook to try to convince others that they have a clue as to the direction of the market, or anyone particular stock. My favorites are the technical analysts, who are really great at predicting the past, but haven't a clue what will happen in the future.

NO one knows where this market is going.

It could be a 2 year bear market or a 10 year bear market.

I was almost 90% in bond for over the past 3 years. CA Tax Free Muni's. I had 2 large bonds called last week and I invested 1/2 the money. I also liquidated some closed end muni bond funds about 4 months ago thinking that there were some good values in stocks (wrong so far). I have had my head handed to me on the stocks even though I wrote some in the money calls on some of the stocks. I am still about 75% in bonds. The bonds have offset almost all my losses in stocks.

We all need to stay diversified and think long term. Right now maybe 10 year long term.

Given something called "present value" 10 year horizons for stocks requires a boom within the next 10 years similar to the last one, just to break even. At least, that's what my calculator tells me.

Hey, Ben, if you got 75% out of the market 3 years ago, you must have been psychic!

Explorer, Ben didn't need to be psychic, he just needed to realize that history was repeating itself in the form of yet another speculative bubble. When you see stocks going up in a straight line, mainstream news headlines discussing the incredible bull market, and speculative stocks with negative earnings and tremendous debt going through the roof, you are probably watching a speculative bubble forming, and that the bubble will eventually burst. The same thing is currently happening in the real estate market. If you would study your history, you would know this.

Kendricks:

Everyone KNEW that a bubble was forming, the question was when it would end. *I* was surprised when it happened.

The current real estate market is a bubble, but it could go on for another couple of years. Anyone who gets out of that market a few months before the bubble breaks is practically psychic.