When fear levels are raising and people are losing their cool, it is hard to want to be anywhere near the stock market. Trying to pick the absolute bottom is almost impossible, and really should not even be your goal. At times like these, crowd psychology plays a bigger role than a quantitative investor would like to admit. Investing would be easy if you could simply calculate the present value of future earnings. It simply is not that easy and pretending it is shows a lack of actual experience. Paraphrasing many great investors, “You need to be greedy while others are fearful and fearful while others are greedy.” While absolute fear has not broken out, experience tells me that short-term bottoming is taking place.
I think this is playing out like a textbook correction. I still think we end the year with modest gains, just as I suggested when the year began. I still think we’ll experience a 15% correction, also just like I suggested when the year began. And interestingly, just like I suggested when the year began, the correction would take place as a results of geopolitical events. Over the last several weeks this sell-off seems like a slow-motion crash to me. As the summer ended, you could almost feel the tide of the market receding and I suggested to leave the last wave for someone else. Then you really saw the market leadership narrow. The small-caps stocks went into a free fall while the largest cap companies grinded higher. Now we see close to 1000 new lows and almost no new highs. This is how short-term bottoms are made. I suggested a knockdown was coming, but it would not be a knockout. Don’t let yourself get knocked out during this textbook sell-off.
I suggest now to take partial positions in your wish list prices in the companies you would most like to own. Buy more on pullbacks. Being a buyer when fear dominates the market is how money is made in the market. I expect to be talking about seeing the short-term bottom in the rear view mirror before the month is out.
Longs- Federated National Holding Co. (FNHC) , Omega Protein Corp. (OME) , Emerge Energy Services LP (EMES)
Shorts- NetSuite Inc. (N) , Chico's FAS Inc. (CHS)
By Jordan Kimmel, Chief Investment Officer at Investview, Inc. (INVU).
