To print article, click
Print on your browser's File menu.
Go
back
Posted
7/11/2002 |
Not all of the reviled stocks will come back. Some
things in the market never change.
|
 |
| Price |
15.350 |
|
| Change |
-0.050 |
| Research
Wizard
Add
to MSN Stock List
Message
Board
Related Resources
Build
a screen of real estate stocks with our Stock
Screener
What
stocks are hot or not?
What
are the top-performing
industries?
The Speculator
Recent articles:
• The market's
shaken, rattled and ready to roll, 6/27/2002
• All this
hopelessness a good thing for optimists,
6/20/2002
• Foil the
money-snatchers: Buy a stock, 6/13/2002
More...
|
|
| sponsored by: |
 | |
The Speculator
We
blinked when we should have bought
The mistress of markets
stared us down last week; we sold as the market slumped into July 4
-- and we missed out on a major rally. Let that be a lesson to
you.
By Victor
Niederhoffer and Laurel Kenner
The market finally achieved a Herculean rally on
Friday, after an almost unbroken series of devastating weekly
declines starting at the end of March. As always, the best time to
buy was just when everyone was ready to give up. The Nasdaq ($COMPX)
and Standard & Poor’s 500 ($INX)
rallied 8% and 6%, respectively, from their Wednesday lows.
To the man from
Mars -- or the well-capitalized investor -- last week was barely a
ripple. The Nasdaq fell 1% for the week, and S&P 500 futures
were almost exactly unchanged at 991, up from 990.10 at the previous
Friday’s close and down from 992 the Friday before that.
But
what a fantastic, life-threatening and terrible journey the market
took from Point A to Point B. It was guaranteed to be so. That’s why
the strong get richer and the weak get poorer. And that's why it's
so important to be well capitalized, so that you maintain the
resiliency and wherewithal to keep the market from trampling
you.
How we missed out
Last
week -- the first week of July -- was ideal from the standpoint of
the mistress of markets -- the cunning, malevolent symbolic being
who never passes up an opportunity to ambush the investor at his
weakest moment. She took money from all the weak people by forcing
them out as the new lows were being set. She sent the
trend-followers in with more and more selling at the bottom. Then
she ended almost at the same point where she started the week -- her
favorite outcome.
The only ones able to profit were the
strong market makers who were ready to buy consistently at lows that
looked like the end of the world. The weak made many contributions
to the house.
We did not distinguish ourselves in our own
trading last week. The previous week had been very good. We caught
everything right. We bought almost all the intraday lows, and we got
out at the intraday highs, that day or the next. But as good as the
first week was, the second week was bad.
After a streak of
some 750 consecutive columns without missing one, we didn't write
one on July 4. True, it was a holiday, but the real reason is that
both of us were much under the weather health-wise. The market
mistress spotted us at 500 yards as we tried to avoid her gaze.
Unrelenting as always, she finagled Laurel on Tuesday into a
last-minute cancellation of a buy order of a leveraged S&P fund.
Then she forced Vic into flight at the close on
Wednesday.
How humiliating. How terrible. That was the best
time of all to be long!
Revel in the
reviled
Everyone was afraid of holding over the July 4
weekend as the concern over a possible terror threat reached its
apogee. Recent employment numbers had been very bearish, and, for
some 15 Fridays in a row, being out of the market had been the
better part of valor.
"What do you think?" Vic's brother Roy,
a successful hedge fund manager, called out across the net at their
traditional July 4 tennis game on Thursday.
"Tremendous,
unprecedented, fantastic rally." Vic predicted. It happened the next
day, but we weren't available to fully participate in it.
All
we can say in our defense is that we quantified our prediction in
our June 27 column on the VIX ($VIX.X),
"The
market's shaken, rattled and ready to roll", and in our numerous
other bullish posts these last few months. We have every confidence
that in a year, or possibly two, we will be just as bearish as
average investors are now. And they will be just as bullish as they
are now pessimistic. Then it will be time to circle the wagons, just
as today it is time to saddle up and ride ahead.
Martin
Knight, a statistician and actuary from California with whom we
exchange thoughts on a cyber list of philosophical investors, said
it best: "It is the greatest irony that the stocks touted as
must-have investments at the market top in 2000, once reviled, will
truly qualify as must-have investments. That’s what happens at
turning points -- perceived risk and real risk become mirror images
of each other."
Not all of the reviled stocks will come
back. Some things in the market never change, and we suspect that
one thing that causes the downfall of star corporations is seduction
by the false beauty of merger accounting. There is an enduring
temptation to make all-stock purchases with the unstated aim of
committing tomfoolery with the income statement.
Beware the serial acquirers
With the
collapses of WorldCom (WCOME,
news,
msgs)
and Tyco (TYC,
news,
msgs)
fresh in mind, we’re running tests now to see if a series of
acquisitions might be a signal for a downturn in share price
somewhere down the road.
The gallery of past years' serial
acquirers includes ITT, Teledyne, Penn Central and Equity Funding.
Harry Figgie, Charlie Bludhorn and Wayne Huizenga all had their
days. "Jimmy Ling’s LTV was the heaviest to fall at the time,"
recalls Vic’s Harvard classmate, whom we shall call "alte." "But
they all fell like leaves in whatever bear market that was, as the
paper sunk and deals fell through and the beautiful skein of rising
earnings was no more."
"The succumbing can take quite a
while," Vic's friend notes. "Maybe it just takes a cleansing of the
investor stables over a decade or so to bring on a new crowd who
have no direct experience with how the same sort of house of cards
collapsed before. A group for whom the phrase, ‘It's different this
time,' makes solid economic sense."
In the meantime, we are
both on our way to recovery from our health problems now, and ready
to march on with pencils and paper by our side. Next week, we'll be
back again to report on how serial acquirers perform over the long
term. Our preliminary studies show an inverse relationship between
the number of acquisitions and stock performance in recent years.
End notes
At the depths of
the market’s journey into the underworld last week, we received more
hate mail than encomia for the first time since we began writing
together in January 2000. Usually, we receive several dozen rosy
letters for every thorn, and we always send 10 or so of the nicest
ones to our editors as insurance against those days when they get
the itch to fire us. Also, we know that critics always write
directly to the boss. But last week, one e-mail after another
contained calls for our immediate resignation. Here are a couple of
representative samples from last week’s mailbag.
Folks like you are doing a great disservice to the society.
Countless people have lost their life savings in past two years.
Stop giving them hopes that a new bull market is on its way
reaaaal sooon. Find more productive work to do. For your sake and
for that of others.
Sincerely,
Samir S. Desai, Ph.D., CFA,
Technology Value Corp.
Your recent article is the type of
feel-good propaganda that tells me we are nowhere near a market
bottom or the beginning of a new bull market.
Grant E.
Palmer Some readers found our ill-timed choice of WorldCom
quite hilarious. "Congratulations!" wrote Mark Sulkin, an
institutional consultant. To which Laurel replied: "Yeah. You can’t
win ‘em all. That’s why we buy baskets. Of course, even that doesn’t
always work."
We suspect that, if we quantified it, the
amount of vituperation we receive when we're bullish would be highly
correlated to the size of subsequent market rallies.
The
questions everyone is asking now are: Has there been a capitulation?
Is this the turning point?
We don’t believe in capitulations.
What we can say for sure from experience is, "You don’t need to find
a bottom to make money."
We’ll end with a cautionary message
about a visit to the blackjack tables by our friend John Lamberg, a
card-counting, trout-fishing, engineer/inventor/Monty Python fan who
keeps the insights coming from his lair in Minnetonka, Minn.:
I stayed too long. Needless to say, I helped the house’s
cash flow, and on the way out the following thought came to mind,
"The edge is gone when you stay too long." We’re going to
keep that in mind for the next time we manage to catch a rally.
At the time of publication, Victor Niederhoffer and
Laurel Kenner owned WorldCom. They may be long or short securities
at any given time.
|
