Monday, November 28, 2011

Ghosts of V - Shaped Recoveries

New roof is in progress. Getting ready for the winter. It should be done by tomorrow.

Ghosts of V - Shaped Recoveries
Markets moved substantially higher today after the Sunday rumors and new money programs were announced. It was your average panic buying party with about every single stock making large one day gains. After a steep drop what you want to see is firming action and basing, but the market never does what would be best. Another large gap opening just makes more of a mess of things to my eyes.

Robert Sinn has an excellent take on the wild day, and it's well worth a look:
The Low Volume Reset
The enormous macro uncertainty combined with the day to day market whipsaws have moved many investors/traders to the sidelines permanently. What will it take to bring them back into the game
Rather than hash out the action today I wanted to touch on a subject I think is always in play inside the heads of market players.

"Got a lot of past, Joe. Things accumulate."
-Andrew Cord in Highlander episode "Brothers in Arms"

Faced with debt downgrades, a slowing global economy, persistent high unemployment, and maybe 3 or 4 other concerns one may wonder why buyers line up to plow into a rally at the drop of a hat. The answer lies in the past. I think the ghosts of the past two V-shaped recoveries linger in the psyche of us all. The March 2009 ignition of a monster rally and August's 2010 blow away bottom cannot be forgotten. Chart form (weekly chart):
(don't worry about the lines, just showing the V shape!)

I believe that people can be haunted by memories, both good and bad. I know the V move is something I think about all the time. I cannot be the only one.

At a time when intervention by higher powers (not the spiritual kind!) is all but a sure thing, no one wants to miss the train when it's leaving the stimulus station. It can be very difficult to board later on after a longer run than you thought possible.

This also explains the market dynamic of everything goes up, or everything goes down. When things get going it's not going to matter too much what you have, but it will matter if you don't have anything. It's a nasty part of the market but I think it foolish to not acknowledge it.

How much do ghosts of V-Shaped recoveries factor into your thinking?

Have a good night.


Sarie (@23aloha) said...

Great post. Because of the recent past of V shaped rallies/recoveries, makes the fear of missing out on the possible next one that much more potent ... for me, anyway.

getyourselfconnected said...

And that is exactly the point. Agree 100%, explains a ton. Thanks for stopping in!

GawainsGhost said...

I don't think much about V shaped rallies. I do know that the ones who buy in early and sell before the inevitable downturn are the only ones who profit.

Me, I just want a reasonable rate of return with a sound business plan.

It's just like in real estate. The real money is in the listings. That would be 3% of the sales price, or a minimum of $2000. Doesn't sound like much, I know, but when you have over a hundred listings a year, you to get to talking about serious money.

Of course, if I make a sale of one of my listings, I earn an additional 3%. But I don't concern myself much with sales. There are hundreds of other realtors competing for sales. Once I put a listing on MLS, drove to the house, put up a sign, and when I got back to the office there was already a contract for full list price. Hey, 3% isn't bad for half a day's work.

Certainly, other houses take longer to sell, and the market fluctuates. Prices go up, prices go down. But as long as I keep getting listings, there's money to be made.

Most realtors deal with owner occupiers. I don't. These people are notorious for overvaluing their homes and refusing to negotiate. I deal with corporations. Asset managers are always eager to make a deal, because they work on a bonus system that pays them based on the number of houses they sell in a month.

Big Hint: If you're shopping for a repossessed home, make your offer at the end of the month. The asset manager will assuredly agree, because he wants his bonus. At the beginning of the month, he's much more inclined to hold firm or negotiate, try to get as much for the property as he can.

Either way, the more listings I get, the more 3% commissions I earn. The average realtor nationwide will list and sell 6 houses a year. Last year, I listed and sold 121. (And that's just for me and my mother. There are 8 other realtors and 2 other brokers in our company. Total number of listings and sales, around 1,000.)

It's a lot of work, to be sure. And it takes a lot of capital, for maintenance, repairs, utilities, but I'll be reimbursed for all of that. And I'll get to deduct my gas, mileage, membership dues, cell phone, meals, from my taxes.

What it is is a sound business with a reasonable rate of return. And it's worth millions.

The stock market is a fool's game. It's for gamblers, flash traders, institutional investors, and government insiders. Be very wary where you tread.

David Batista said...

Heh, heh . . . nice Andy Cord quote, man.

Cord: "Damn. Outstanding!"
Mac: "I'm not done yet."

Ba-dum-dum! (sound of head rolling). :)

Hope you get that roof done soon. Because . . . wait for it . . .

Winter Is Coming!

getyourselfconnected said...

Thought you might likme that quote David! F#@K winter!

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