Taking The Other Side

A lot of people have been telling me I’m crazy.

This is not the market you want to be buying dips in, they say. Don’t do it. Run away.

Everyone has done stupid things. I have done many throughout my life. But when I reflect on them, I realize most of the worst decisions share one thing in common:

Me, following the herd and letting the collective consciousness influence my decision-making.

For the last several years, a good friend of mine has been saying, “this is the most hated bull market of all-time.” I could not agree more. And I agree with him even more as of this writing. People hate this bull run. They are always looking for reasons behind the next big crash. They all want their own movie made after them.

Paul Tudor Jones, the legendary trader, was on TV the other day. Naturally, he rides into town after the market has suffered a 10% drop. Not before, but after. He went on to say, “I think in the next year it will be, from where we are today, at least 10 percent down and 10 percent up; maybe 15 percent either way from where we are right now.”

I appreciate such foresight. But, also: I think we know how he positioned his portfolio in the days before.

Mr. PTJ is now selling to you.

Turn the TV off.

From November 1 of this year through December 6, online holiday shopping in the United States hit a record high. In this short period of time, people in the US collectively spent $80.3 billion buying things across the Internet. Where was this number last year at this time? $67 billion. No big deal.

I am fascinated with tech and Internet stocks right now. Mostly Apple and its recent plight. It’s down about 30% in two months. You don’t often see orderly drops like this among the biggest companies, especially while the rest of the market is, on a relative basis, outperforming it.

There will be opportunity.

The stock market is the only place in the world where people feel more inclined to buy at higher prices and sell at lower prices. I wait for the day I walk into a store to see everyone rushing to the most expensive items while scoffing at the fire sales.

The stock market is also one of the few places where being optimistic is often more contrarian and more difficult than being pessimistic.

I think the current market correction and also Apple’s entire drop can be traced back to a few key stocks: GE and Facebook. These two have made it into everyone’s portfolio over the years. The other day I was looking over a colleague’s portfolio and even they, somehow, managed to have exposure to GE Corporate Bonds. All thanks to one of those, “we make investing easy” apps.

As GE and FB meltdown, so does everything else. The structural integrity gets weaker. It becomes more natural to salvage your winners and cut back on risk before another Facebook or GE happens to you.

Every time I hear, “FANG” my brain melts a little. There are over 3,000 stocks in this market. The collective market should never focus on just four with such obsession. If you really want to control the direction of the market, you would take control of the biggest names – the heaviest retail stock exposure, forcing a liquidation event in them. That’s more important than any other headline or political event. I don’t care about China. But if you force a sell-off in most widely held names, well, uh-oh.

I am a wannabe technical analyst.

I have no real certification, but I like to check on trading ranges and overall movements of stocks. But gloomy technical words are a state of reflection on what’s happened with little thought toward what’s going to happen next now that it has happened. I have been in this game for 10 years now. I remember when I thought these words mattered.

To this day, no one has provided conclusive evidence that falling breadth leads to more lows and death crosses lead to more crashes. The best technical analysts I know are actually aware of their limitations and the pseudo-science they perform. Rather than full truths, their analysis is used to weigh trading entries, exits, backtesting, and overall risk management. They don’t let it govern their entire outlook.

Not long ago, I was traveling Mexico with my number one muchacho from college. He told me he’s salivating at the sight of a major crash. He has been hoarding cash for years waiting for something big.

How much longer will he wait? How many more people are out there like him? Waiting… waiting…

The headlines will tell you otherwise. It is enjoyable to watch such top callers. Especially as their dollar cost averaging strategies are literally, without hesitation, buying all the dips they’re warning everyone else not to buy with every paycheck they get.

In 2009, the population in the United States was about 305 million. Today, it’s about 326 million. In 2009, there were estimated to be about 210 million people with an internet connection. Today, it’s about 300 million people. That means almost every single American of any age has access to Internet now.

The demographics of America are getting stronger, bigger, and smarter. Millennials are the single biggest age group this country has ever seen. They are also dedicated to technology, its costs savings, efficiency, and how it can improve the lives of everyone around us. Yes, they have some student loans. But yes, they now also have one of the strongest post-war job markets on record.

In terms of my positions, I’m still holding my core longs, which most of you know. And lately I’ve begun watching both GE and Apple very closely. GE could go bankrupt. But maybe, just maybe, there’s a chance for an underdog turnaround story on par with Benny Rodriguez or Peter La Fleur.

And that leaves me with one final note:

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