Time for Patience, Not Panic

 | Jun 21, 2013 | 2:00 PM EDT
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If you are active on social media you may have thought that the world ended this week. The posts and tweets reflected a huge amount of pain and suffering among traders and investors alike.

The tone was very crash-like and some folks confessed to having their worst week in the markets in years. Others pondered buying the selloff and at least one intrepid sold talked of buying when the blood is in the streets. We have gotten so used to up markets and the Fed riding in to save the day that a 6% decline from the highs is a disaster of epic proportions.

I have to point out that this market is still up 20% over the past 52 weeks and more than 12% so far in 2013. This isn't even a healthy pullback yet, much less a crash or severe decline. If you are trading equities with so much leverage that this market action is causing extreme pain, you need a reality check, a history lesson and possibly a new career choice.

When I ran my various screens after the close Thursday I did not show a significant, or even small, amount of new inventory being created. There is not a huge buying opportunity in the stock market by this week's action. I have no idea what the market will do in the days and weeks ahead. But nothing actionable has happened to form a long-term-value investors' viewpoint. It is just normal noise and churning so far. Far from blood in the streets, this isn't even a little shaving cut yet. U.S. equities are much closer to a point of excessive optimism than maximum pessimism.

I spent some time this morning searching for markets and assets that might be near the point of maximum pessimism and worthy of investigation. Clearly, the precious metals have to be considered here as a market where the sellers are in control and causing serious pain and disruption. In the last 52 weeks gold has fallen 23% and silver is down a gut wrenching 34%. The odds of me ever buying the metals, except in jewelry form to offset some husbandly error, are pretty slim. But the mining stocks also have been pummeled along with the shiny stuff.

As usual, I was a tad early in this sector and have a few small positions that have been hit hard. Pan American Silver (PAAS) has dropped about 20% since I first started buying and it's the winner of my metals mining positions. Aurico Gold (AUQ) is down about 50% from my first purchase. Fortunately, I was smart enough to proactively stay small and move slowly with these stocks. It looks to me like it is probably time to add to these positions amidst the decline. I intend to be a buyer of Coeur Mining (CDE) in the next few days as well. I may not understand metals at all, but I do understand buying stocks at less than 70% of tangible book value.

Brazil is also nearing a point of maximum pessimism. There is literally blood on the street as millions have taken to the street to protest high taxes, poor infrastructure and political corruption. The country is seeing the economy weaken even as inflation hums along at better than 6.5%. Interest rates are rising and the stock market is plunging. The Brazilian Real and the Ibovespa stock index are both trading near 2009 lows.

This is another market where I was far too early in my initial buys. My stake in the electric utility Centrais Electricas Brasileiras S.A (EBR) is down about a third from my overly optimistic purchase earlier this year. Oi SA (OIBR) the telecommunication company is down by about half. I am probably not adding to these just yet but I am starting to eye Brazilian banks such as Banco Santander Brasil (BSBR) and oil and gas giant Petrobras (PBR) as they both trade at far less than asset value.

In my eyes, Brazil is more of a developed market than an emerging frontier. Although I believe it may struggle economically for a while, it will eventually recover. Owning the phones, electricity, banks and oil strike me as the best way to bet on an eventual recovery.When looking for global points of maximum pessimism I move even slower and stay even smaller than normal.

My initial positions are tiny and I fully expect to add to them at prices 30%, 40% and even 50% lower over time. I intend to own them for a very long time as pessimistic, battered markets take awhile to turn around. It is not a strategy for impatient investors or leveraged traders. If you buy on a deep scale, however, and are extremely patient, it should pay large rewards over time.

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we like this chart here, it appears ready to move higher. BOUGHT BZUN OCT 35 CALL AT 3.40
Large-cap, high-quality McKesson (MCK) is too cheap now, at $147.51 or so. The stock hit $243.60 more than 2.5...



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