Carl Jung once famously said, "A scream is always just that, a noise and not music." That pretty much sums up how I feel about the current stock market. Last Monday, the end of the world failed to materialize. Today, the savior of the markets failed to show up as scheduled. Last night when the futures were up strong, the chatter was that bears were going to get killed today and we would have a "rip your face off" rally this morning. But once the euphoria over the undefined Spanish bailout started to fade, Italy and then Greece moved back into the headlines. I hear a lot of noise and very little music coming from market participants.
If the markets were a cocktail party, I would be the most boring guy in the room. While others dazzle with talk of their various straddles, strangles strategies and schemes designed to profit from the latest breaking news, I am just wandering around kicking at things in the corner of the yard. When the talk turns to what we should do right now to exploit some perceived advantage, I am always the guy who has nothing to say. In the past few months while Europe worsened and the economy weakened, my advice has consistently been to do nothing. Hold what you have that is safe and cheap but resist the urge to sell good stocks or go on a buying binge. The market never rallied enough nor declined to the point that prices and valuations became interesting.
If you look at the market over the past three months, not much has happened. In spite of a constant flow of bad news out of Europe, generally weak economic reports in the U.S. -- including a disastrous jobs report that many took as a sign of the end times -- the stock market has been in a 10% range for much of the time. The Market Volatility Index (VIX) has not shown the type of spiky behavior we have seen at important market lows. It has not even rallied over 30 to indicate developing panic. Henry Carstens of Vertical Solutions recently shared his work that indicated that a regime change in the market occurred when the VIX was above 28. But it never got there this time around. I hear lots of noise out there, but very little music.
So, I try to ignore the noise and look for stocks that have fallen a lot and may be safe and cheap. When I look at what has fallen the most in the past three months of gyrations I do not see any enormous buying opportunities. Stocks such as Fossil (FOSL) and Netflix (NFLX) have been among the biggest losers in the S&P 500 over the last quarter and they do not strike me as safe or cheap. First Solar (FSLR) and Alpha Natural Resources (ANR) look cheap to me, but I am not sure how safe they are. Both face significant industry and specific challenges over the next year. I am one of the few fans of the J.C. Penney (JCP) makeover, but the stock is not cheap enough for me yet. I already own Micron (MU) and will probably buy back Nabors (NBR) shortly but this markets is not creating a lot of safe and cheap inventory.
I have been around a long time and I have seen all the bright young men and women with their theories and patterns chase the noise in search of profits. After several decades in the markets, I can easily count on one hand those who could actually do it for a sustained period of time. More than a few of us embrace the "safe and cheap" investment strategy. We are still around and reasonably prosperous. We may not be flashy, but we have learned to tune out the noise and embrace the music.
So try to ignore the screaming -- you will find greater profits as well as increase your peace of mind.