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Scribbler's Macroeconomic View

That Was Then, This Is Now

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“We know this quarter is going to be bad, but looking into the future…”
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The technique is to qualify projections of the future by making a statement of fact, and quickly following it up with a statement of opinion so as to suggest the two are equal.

If pressed, the basis for the argument will usually end up being something along the lines of “every time this has happened, it was the wrong time to sell.” This is the logical fallacy of appealing to probability: Since there is a chance that X will happen, then X will eventually happen. The point is that all the backward looking analysis doesn’t take into account the particulars of the current situation. You must come to your own conclusions using the current information.
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</o>Almost everything that gives you an incremental measure on the economy is deteriorating. Yet some will tell you the time is now – right now, and you are a fool if you don’t get involved, and stay involved in perpetuity. Exactly the same thing they said at Dow 13,000; Dow 12,000; Dow 11,000; Dow 10,000; Dow 9,000.
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</o>If CEOs who have worked in their industries for years shy away from giving forward earnings guidance, who are we to disagree with them? Why should we assign them high PEs, based on forward guidance they won’t give? Would you buy a stake in a business that just had a year that was worse than expected, and the managing partner says he has no idea what next years profits will be, but the economic conditions will continue deteriorate?
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</o>Do not become a victim of the line of thinking that ‘since things are bad, now is the time to invest – just look at what would have happened if I would have invested at this point in the past.’ That set of circumstances was then. This is now.

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Comments

  1. tsptalk's Avatar
    Welcome Scribbler! Thanks for your contributions. I've enjoyed your posts.
  2. coolhand's Avatar
    Welcome to the board Scribbler!

    One of the funny things about equity markets or economics is that one can agree and disagree about a given point at the same time. Rarely, if ever can these entities be analyzed without many caveats or assumptions. Usually time is a factor as well. What may not be true this week, may become true next week, or next month, etc.

    Sadly, our retirements in general are largely built on our economy and its associated equity markets. For those of us who passionately pursue market timing, we find any number of indicators to help guide us in managing our portfolio.

    The variables are considerable and indicator interpretation requires experience as well as diligence in application.

    There is no escape from risk for either a buy and holder or a market timer.
  3. Scribbler's Avatar
    coolhand,

    You're spot on in that there is no escape from risk, regardless of whether a person is buy and hold or market timer.

    However, the main advantage of the market timer is the ability to quantify risk. Unfortunately for some, the buy and hold belief has been very painful since this time last year.

    If people were to honestly ask themselves "How much am I willing to lose?" from any given point, and have the discipline to stick to it and cut their loses -- rather than embracing the dogmatic belief that buy and hold will always work out in the end -- people would do themselves a big favor.

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