Get out now! And get back in and when it's right to get back in!
There, that pretty much sums up the genuine homespun wisdom I am hearing, particularly from wealthy fund managers who should know better. A 900 point drop in the Dow after a massive run is the excuse in itself for panicking and gosh by golly panicking's become the American way.
Even casual viewers of this old warhorse know that's not how I look at things.
Let's go to the videotape.
About a month ago I did a show where I started out by saying that the proprietary oscillator I follow, the S&P's short-range oscillator, is the most important indicator I follow and when it is above five you need to sell something. When it is well above five and you have to raise as much cash as you can.
I know this seems like a bunch of mumbo jumbo versus say, some highfalutin Fed gobbledygook of some outrageous tweet or, egads, an ISM number - as if most people know what the heck that is.
Far better to rely on rich hedge fund managers who send letters out saying we are following the 1930s roadmap in an ineluctable way? They won't have to retract it. They don't owe you nothing. Much better to rely on an inverted yield curve even as it's possible and likely the Fed lowers rates because it raised them too far too fast and too furiously to begin with. Vin Diesel for Fed Chief!
Or maybe dump or buy depending upon a tweet about the Chinese trade war?
I don't think so.
If you recall, what I said was simply that plus eight meant that there was too much enthusiasm so we were going to raise a big pile of cash for my charitable trust which you can follow along by joining the Action Alerts PLUS club. We took advantage of it to trim some big gains and take losses on stocks that were inflated by over enthusiasm.
I said at the time I had no idea what would happen to derail the market. I went out of my way to profess the real ignorance I felt about why we had to sell and instead relied on this thing that measured enthusiasm and there was way too much enthusiasm.
In fact I didn't want to sell. I didn't want to tell you to sell.
But it was muscle memory from the days when I was a hedge fund manager working with Karen Cramer. You see she didn't pretend to know the ways of the Fed and quantitative tightening or easing or a survey of what the Fed will do next or an internecine fight between the Fed chief and the president.
What she knew was to sell when the oscillator was too high. I would be adamant that we owned stocks of great companies. She would say who cares if the companies were any good, the stocks suck - a word I can now use because both Mark Zuckerberg and Senator Elizabeth Warren used it yesterday, and the president used something even more scatological in an unpresidential tweet today. She would say they are divorced from the stocks underneath - prescient term - and my security analysis meant nothing.
Initially I wouldn't budge. But I learned the hard way. We worked where Wall Street intersected Water Street. One obstinate day she sent me out to get her a hot pretzel and a Diet Coke. When I came back she had sold almost everything.
I was livid. She said, "You don't like what I did, why don't you buy them back."
I didn't.
The market rolled over big time. Just like it did this time. It was the first time. But it was not the last. Sometimes when it was really hot she made me get water ice. Sometimes when I screwed up she make me wear a post-it on my forehead with the stock symbol of a stock that I had lost big money on and had me walk all the way around the building and when I came back every trading position was off the sheets.
I thought it was ridiculous that some ridiculous measure of buying was calling the shots and not me but she said it's best that way because you needed to be objective, you needed to be clinical, you needed to be disciplined and you needed to check your emotions at the door before you came and sat on the trading desk with her or you should go home because you didn't deserve to run money.
It was almost never wrong. Sure there would be the rare event but the post-it, the pretzel, the water ice always trumped - another pun intended - whatever my work said. Stocks had become divorces from their worth and I had to accept that.
She reiterated that at the beginning of last month when the oscillator hit that level. She was as unwavering now as she was 30 years ago. I love constants.
Now here's what's so great about this darned thing. I didn't' know that the Democrats would go for impeachment for something that happened in Ukraine with that legendary funny man leader. I didn't know the ISM would plunge into recession territory. I didn't know that GM (GM) workers would go on strike. I didn't know that railcar loadings would plummet. I didn't' know that the president would press the bet with China. I didn't know that the Peloton (PTON) deal would stink up the joint or that We Work would teeter. About the only thing I did know was that with the really easy schedule that the Patriots had they would be in first place.
So now, now? We have to wait. When it was that overbought it has to get oversold. You can pick, though. What can be picked? Food stores, she would say. You have to eat. These days that's Walmart (WMT) and Target (TGT) , they are two largest grocers. Don't' forget Dollar Tree (DLTR) . Yield but safe yield. Nothing that's hated. If its hated going in it will be hated going out. You can still sell but only to free capital to buy what you like more. It's not too late to do that still.
I didn't want to sell when it was plus eight. But I sure didn't want to buy when it was cascading down. Yet that's precisely when you had to hold your nose and buy. You never want to buy when it's ugliest because you always think it will be uglier and you will have the same extreme of emotions that you may have now.
I will leave you with this. Twenty one years ago next week I was nervous, I was worried, I was selling, selling hard with the market very oversold. I was down more than one hundred million dollars. That's when one hundred million was a lot of money.
She hadn't been to work in ages. Staying at home with the kids.
She came back curious to see how in heck I could lose so much money. She wanted to know with the oscillator down so much I was still selling.
She sat down took out the catalogs - always drove me mad, the catalogs, started ordering from Lands End and said I should get her some French Fries.
By the time I came back she had put hundreds of millions of dollars to work. More than we had.
More than we could borrow.
I was horrified.
She said if I wanted to I could buy everything back.
I didn't.
At the end of the day we learned that the Fed was going to have an emergency meeting and the market rallied and rallied hard. We made back a big percentage of the money we were down. When the market closed, she gathered her catalogs , including the Martha by Mail she liked so much, and she walked out the door. Quick wave. Nothing more. Never came back again. Ever.
Look, I don't know when this one will bottom. It's pretty darned ugly. I know she sure doesn't like it yet. But she likes the recession talk. Likes the negativity. Reads my Twitter (TWTR) feed. Likes the hatred even as I have been negative. Likes the fear instilled by so many hedge fund managers and commentators.
Nevertheless, the oscillator?
Not down enough. So pick. Not aggressively, no hurry. And be glad you are unemotional or you would still own a ton of stock that you can now buy back at much better prices.
