We are having one of the worst Octobers in the past decade.
Prices took some huge hits this month, and some folks under 35 have learned for the first time in their lives that stocks can actually go down.
It’s a little scary if you have never seen this type of price action, but I’ve seen it so many times that so far I have not paid much attention.
The market has not offered a bunch of bargains yet, so there is not much to do at the moment. But personally, I am hoping that changes soon.
At my house, we don’t celebrate new highs.
We expect new highs to happen, as we know that human nature itself means we all are going to want to strive to build a better life for ourselves and our families. That striving leads to innovation and growth that provides an upward drift in the equity markets over extended periods of time. It happens all over the world, but nowhere is it more evident than here in the United States.
Instead, we celebrate these occasional violent down moves.
These down moves cover Wall Street in blood and vomit, while Main Street huddles under the kitchen table in fear, cuddling a bottle of cheap gin.
But that’s when fortunes are made.
And that’s exactly how one lone, miserly woman, known as the “Witch of Wall Street,” made her fortune.
The Richest Woman of the Early 1900’s Reveals How to Buy Bargain Stocks
Hetty Green, who we will talk a lot more about here in the years ahead, became the richest woman in the world back in the early 1900s.
It was all because of her genius investing strategy.
As she told us, “When I see a thing going cheap because nobody wants it, I buy a lot of it and tuck it away. Then, when the time comes, they have to hunt me up and pay me a good price for my holdings.”
As dismal as last week felt, we are nowhere near the bottom yet.
When we get there, the Melvin Clan and its associated members will break out the Pappy Van Winkle and Opus One. But we are not there yet.
Will we get there this time? I hope so, but the truth is I don’t know.
How will I know?
It’s simple really. The numbers will tell me.
Here’s When the Numbers Alerted Me to Buy at the Bottom in the Past
One of the best investors I have ever known used to tell me that his personal slogan was “I love the smell of napalm in the morning.”
Following the numbers will give you the courage to buy – even at times when fear is so thick in the air, you can hear the helicopters low on the horizon with “Ride of the Valkyries” playing at deafening volumes.
Times like these…
- 2002: When tech companies were selling for less than cash, and when bonds of financially viable communication firms were trading for 50 cents on the dollar
- 2004: When REIT prices fell in response to a fed rate hike, an idiotic response by market participants, and we saw real estate holdings outperform the markets by more than a 2 to 1 margin over the next two years
- 2009: When it looked like the world was going to end, as companies like Disney (DIS) and Corning (GLW) were selling for less than my estimate of their liquidation values, yet the numbers were cheering and breaking out the bubbly
The only way to have the kind of financial courage to buy at times like these is to rely on cold, rational numbers, not warm fuzzy instincts.
Warm fuzzy instincts are what Wall Street exploits to sell you garbage and get you to act in their interest and not your own. Don’t use those.
Rather Than Trust Warm Fuzzy Instincts, Rely on These Cold, Rational Numbers
Here’s how to rely upon the numbers…
We have 4 buckets in our Sabermetric approach, covering various types of investments.
When a particular bucket has a far greater than average number than usual of potential opportunities, we are nearing a bottom. Soon enough, good things are going to happen to patient aggressive investors who swallow back the fear and take the plunge.
When a bucket has a well below average number, and when it looks like stock market rally will go forever and ever without end, it’s getting close to the end. The party is hitting high gear, and the cops are on the way. Staying means at best a hangover, possibly divorce threats from your spouse, and at worst lifestyle jail.
What is lifestyle jail? It’s the feeling of financial handcuffs, when you lose so much it’s hard to live the life you choose. It is not a nice place, so let’s avoid that if we can.
Where are we now?
Two buckets, our buyout bucket and banks bucket, have pretty limited opportunities at the moment, and the number of companies is well below average.
Our infrastructure bucket has some opportunities and we can expect to be adding to that pretty soon.
And our final bucket, the real estate bucket, currently offers some pretty exciting long-term opportunities.
Last week didn’t bother me much, as the numbers have been telling for some months now to tread carefully and focus on only the very best companies and assets.
For those looking to buy the dip, you might want to keep in mind that the numbers are not very excited at the moment. We have rallied a very long way and would have to retrace a good portion of that for the Pappy and Old Reds to come out of the cabinet.
Relying on the numbers is not a precise mechanism for timing the markets. Sometimes it takes longer than I like for prices to begin to move the way the numbers say they will, but 100% of the time over my career they have eventually been proven right.
To learn more about my track record, which utilizes the Sabermetric approach, click here.
I would rather rely on the numbers, and endure the short-term pain and eventually be proven right, than follow my instincts or the Pied Pipers of the Thundering Herd of Wall Street and have my retirement plans dependent on the kindness of strangers.