Market conditions

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Market conditions

Post  Fred on Thu Aug 04, 2011 2:18 pm

I see the summer doldrums are affecting everyone. I haven't been too active in any sense of the word in terms of trading for quite a while now. I sold my shares in SPM when I was doing well. Also decided to get out of EGLE and cut my losses at 50%.... good thing I did, as this was the reason I wanted out so badly. So I now have at least some money avaliable for a rainy day. I will need a good portion of it to pay down my school debt, but there is some there. I haven't really been looking to far and wide for new stocks. I watch, know and understand the patterns that my usual suspects are trading in, so I'm sticking to my comfort zone. My problem now is that many of them are at or well below a price where I thought was safe to get back into them. But things are looking so shaky from a global perspective that I feel more comfortable to just sit on the money and ride out a good storm. If things continue to drop, we may have another opportunity like we did in 2009-2010. Ironically I also feel relatively comfortable with the stocks that I do still own. Although I am significantly down on many of them, I see them as almost a safe haven for the time being. Yes they can still retreat, but they are also somewhat range bound and the things that I am in them for haven't happened yet. So even in flat market conditions they have potential as projects move along. Hopefully one or two of them pop and I'll have more cash free for another recession. I think we will have an interesting fall season this year. Fingers crossed!

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Re: Market conditions

Post  lukera on Thu Aug 04, 2011 3:38 pm

I'm glad you commented Fred. I'm in the same boat with no money on the sidelines.

I hope my stock pops but am comfortable sitting on it. It would be nice to have better global economic weather though!
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Re: Market conditions

Post  Max on Fri Aug 05, 2011 1:09 am

I am getting a false sense that I am learning to be more disciplined right now. Funny how investment time horizons expand to years when you are losing money, and shrink to days when you are gaining.

I am learning to watch the overall market index. Then more than that to try and reinforce the historical picture with economic events. If the economy is unstable like it currently is, then probably should expect much recovery from current levels. 14,000 was pretty close to all time high. 11,000 is reasonable estimate of the low (got to around 9,000 at the worst of the crisis). Currently we are around 12,500. Given the economic climate as a reference, it is really not all that far off of the highs as you would expect, so I think there is plenty of room for further declines. However, once we get below 11,000, any further drop is certain to be short lived.

I am also starting to consider the index as a barometer of money supply, but there are complications involved in this. Considering inflation, the price of stocks should rise over time along with inflation (rise of prices related to general increase in money supply such as we are seeing with the artificially low interest rates). I am no longer sure if the current money supply shrinking or expanding. Interest rates are low, so more people should be taking out debt, but sentiment is negative, so maybe everyone is being more cautious about borrowing. Still, overall moeny supply should generally transfer from one asset class to another and not disappear entirely, so there is both a limit to how much can be invested in the market (the higher the index - money invested in stocks, the less outside money available to invest in stocks, the lower the index, the more outside moeny available to invest in stocks.)

Hard to keep it all straight, but adding this kind of analysis can help to determine if the timing is right on an overall market basis. Now within the overall market, I think the declining market is a good time to look for strong but beat up stocks nearing their book value (I consider book value a hard limit to how low a stock can go, so even in the worst market crash, it should not go much below book otherwise, you could buy $1 worth of current value for less than $1 - free money).

Fred, if you have some free US cash, take a look at the big oil companies. Profits are going to be down I guess with drilling restrictions, but they will be back up before long. Conocophillips in particular looks cheap (I haven't done any detailed analysis, so I don't know if there is pending bad news out there.) If you need the money within a year, you are probably better to sit on it, since there is a good chance things can get worse and you will be stuck underwater for a while on just about anything you buy.


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Re: Market conditions

Post  Max on Fri Aug 05, 2011 10:09 am

I have been buying Encana (ECA), Sunlife (SLF), and Research in Motion (RIM).

If you prefer another shipping stock, take a look at Diana Shipping (DSX). Gettting beaten up mercilessly like the entire sector, but was fundamentally strong last time I checked. I bought some around $12 (book value) and it is now closing in on $8, which is well below book value.

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Re: Market conditions

Post  Fred on Mon Sep 05, 2011 5:14 am

I am very concerned about the global economic situation. Although the US is in troubling times, I think they pale in comparison to the situation in Europe and the effects that a collapse would have there. Fortunately and unfortunately I have re-invested all my free cash that I don't immediately need. I am happy with my position, but fear the worst of a new and much more severe recession. This is where sticking to a plan gets really difficult. I could make some money and sell what I own in order to weather a potentially rough economic storm... in this situation if the storm doesn't happen, I lose out again on all the potential gains that I have researched and planned for. Alternatively, I could hold on to my shares and hope the markets don't crash... but if they do, I'm screwed. So this feels more like gambling than the actual investing that I seem to have signed up for. I guess for now I will just have to watch the big problems mounting in Europe very closely and make my decisions from there.

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