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Friday,
April 17, 2009
(Cont'd from
above)...
Jim (cont'd):
I say that all of
that, every bit of
it is bogus… every
bit of experience
matters… and as a
grizzled veteran I
have a whole lot of
experience to share
with you…a lot of
lessons that you can
learn from my past
successes… probably
more importantly,
from my past
mistakes… nothing is
more important than
going over the
history and learning
from it… and really
learning from it…
not just like, okay
I did that wrong,
but not doing it
again… so right now
I want to talk to
you about a day that
will live in my
personal emphimy…
October 8, 1988...
when the bear market
of 1998 ended…
something that you
might think has
little relevance to
where we are now.
An international
financial crisis had
started in East Asia
about the year
before… the Asian
Contagion we called…
long term capital
management, gigantic
hedge fund, had
blown up… and at one
point during that
year the averages
were down 40% from
their highs… this is
a story about how
bottoms form… how
you have to put
discipline ahead of
conviction…
repeating that…
discipline ahead of
conviction… and how
you have to use your
own emotions as an
indicator… a way of
measuring the
markets sentiment…
and not let you
guide you blindly… I
should now, the
bottom of October 8,
2008.… I am pretty
familiar with it…
see because I pretty
much caused it… with
an article I wrote
for TheStreet.com,
where I am chairman…
at 12:18 pm and sent
out at 12:29 pm that
day… this article, I
said get out now…
that is right… I
said the equivalent,
I did not have the
show then… the
equivalent of sell,
sell, sell… so you
can probably imagine
the substance.
I had been a bull
going into that day…
hanging on all year…
but the declines and
the parade of bad
news… they caused me
to capitulate… I was
not the only bear to
give up that day…
Abby Joseph Cohen,
the perma-bull from
Goldman Sachs who
could be counted on
to come on
television and give
a positive
pronouncements,
virtually without
fail… on that day
decided to make an
adjustment to her
projection of the
S&P 500 earnings for
the next year… not
up, as everyone on
the street had grown
used to… but down…
that was big for
her… Cohen’s
capitulation, it was
a small adjustment,
but it caused a
landslide of
selling… along with
a slew of other
pieces of negative
news… and the
pressure of the
endless declines… at
one point 2700
stocks were down
that day, only 300
were up.
Well, it caused me
to throw my hands up
and give up too… I
wrote the piece and
told people to get
out… I out in a
bunch of sell orders
for my hedge funds…
and then what
happens… at 12:34 pm
on CNBC, I see Ron
Ensonna’s smiling
face talking about a
rare emergency Fed
meeting… that caused
the market to rocket
back… I called the
bottom exactly… but
not in a good way,
in the worst way…
see I called it by
capitulating… and
the reason is that
when things are the
most grim… even the
most experienced
grizzled veterans,
the most hard bitten
pros blink… I did
not blink, I put my
hands over my eyes…
even the bulls with
the most conviction
decided to throw in
the towel… in 1998,
I was the indicator
that the market had
bottomed… my piece
telling you to get
out encapsulated the
feeling of
capitulation that
had swept the
market.
When you see that
kind of sentiment…
when the last bull
get his head cut
off… when the
negativity is
palpable and when
there are no bulls
left… when the very
idea that things
could better seems
heretical or
unthinkable… that is
how you know you
have formed a
bottom… the decision
by Alan Greenspan to
hold an emergency
Fed meeting and
start cutting rates…
was just the
kindling we needed
to start going
higher… beginning
the tremendous bull
market that lasted
until 2000... you
had to recognize
that bottom, and
like I did at my
hedge fund… cancel
your orders… and go
long… because you
cannot fight the
Fed… just like right
now you cannot fight
Bernanke’s Fed… when
the Fed digs in its
heels and decides to
save the market…
capitulation is
about the surest
possible way there
is to lose money.
▼ ▼
▼ ▼
▼
 The Bottom Line!:
You have to use
sentiment as an
indicator… something
that lets you know
when the bottom is
coming… but not let
it blind you… and I
was completely and
utterly blinded in
1998...
Okay, so let’s recap
here… even the
veterans make
mistakes… but you
always have to honor
rational discipline
over emotional
conviction… and when
it comes to finding
the bottom…
remember, remember
from the mistakes
that I made… it is
always darkest just
before dawn.
[verbatim recap]
▼ ▼
▼ ▼
▼
Jim went on after
this segment to take
questions from
callers, and
responded with his
comments...
```````````````````````````````````````````````````````````````````````````````````
Q:
After the major
market crashes like
the crash of 87 and
of course the crash
of 08. Are there
certain things that
we should come to
count on? For
example, as we work
our way out of
recession this
calendar year, is it
safe to expect major
consolidation within
various market
sectors?
Jim:
Well, I look for
certain specific
things that tell me
that there is an all
clear… one that
there is a bull bear
index that comes out
on Wednesdays… it
measures how many
bears vs. bulls
there are in
newsletters… when we
get down to 25%
bulls, that has
often been the level
when I decide that
there is too many
bears out there…
also, when I see
what is known as the
Standard & Poor’s
500 oscillator go to
a level of -5 there
is too many bears,
-10 there are way
too many bears… in
other words, I look
for indicators that
there are too many
people on one side
being negative… when
I see that, I know I
have got to switch
directions…
gradually perhaps
because the
fundamentals are
bad… but I have to
switch direction.
```````````````````````````````````````````````````````````````````````````````````
Q:
With the major
collapses of 2008,
and the large extend
of losses that many
of us have
sustained, what
advice other than
buy and homework can
you give to better
prepare going
forward? Especially
when you decide to
retire, and you are
not around anymore?
Jim:
I am in it for the
long haul, so don’
worry about that,
you can buy and hold
me… here is what I
think, I think that
we have discovered
that cash matters… I
think the idea of
carrying out no
cash, or 5% cash, or
10% cash, that is
out the window until
we get better times…
how about we have
20% cash, 25%, and
when things look
really bad on those
days when we break
down bad… we put a
little of that to
work… I am saying a
bigger cash hoard…
that is really the
lesson of this
period… 25% cash,
that is fine with
me.
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[verbatim recap]
[end of segment]
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