Q: everth. is overvalued. Who cares? The indexes surge up, be part of it, it may go for some years before fall, or you miss.
J: These are the kinds of responses I regularly get to my articles these days. The fear of missing out is very powerful right now.
Q: I notice you haven’t been listing any stop losses for your trade ideas. Given your bearish stance on equities, do you have a back up plan for if things start to go south in the markets? Would you plan to sell, or are you going to hold certain stocks regardless of the outcome? Are you only buying stocks that you think will perform well in a down market? I’ll admit I’m somewhat surprised you’d buy into positions “long-term” being as bearish as you are. Can you provide any insight here?
J: Good questions. This is why I have the short positions in the “trade ideas.” They are in there because I like them as individual trades but also as hedges. I’m not comfortable holding any stocks right now that aren’t hedged. Having said that, I’m also not willing to pass on good ideas. As for when to sell that’s something that I will deal with when the time comes. For longer-term investments I won’t sell unless I discover my original thesis was wrong. And I do believe many of the things we own will outperform in a down market. Look at how well NLY held up through the financial crisis – and they are in the biz of owning mortgages! Ultimately, though, there’s nothing I’m willing to own “regardless of the outcome.” There is always a reason to sell. It’s just impossible to know beforehand with these individual names.
Q: Jesse, can you comment on if you use options for some of your trades? Fred has used options even LEAPs for SLV and other PM stocks as well as for his shorts. If you do, can you talk about if you do ATM or OTM options; time frame or just in general your strategy. Fleck never sells premium. As volatile as HLF is seems you can limit any busts and profit on upside. Thanks.
J: I’m generally not a huge fan of options. Back at the hedge fund I was the head of options for our broker-dealer. I witnessed a very smart trader blow millions on options trades in his personal account where he was right on the idea but wrong on the timing. Options are great for controlling your risk but I would rather just trade the stock and use a stop unless I am very confident about the timing.
Q: Thank you for your writing and insights. While not a premium member yet, I have enjoyed reading your stuff. I am a self-employed woodworker/carpenter living in Charlottesville, VA and having been burned once in the market (as a 20 year old during the dot com bubble) have started paying closer attention and hopefully learned from my mistakes when investing as opposed to speculating. I find your viewpoint honest, open and refreshing in an otherwise closed and opaque world.
In your latest post, you referred to your August 7, 2014 post. In that latter one, you mentioned posting a Market Cap/GDP chart to track the prospects of future 10 year returns. I was wondering if that was posted and I couldn’t find it. If you haven’t had time, I completely understand. I wouldn’t know where to begin when charting those numbers.
For what little it is worth, I feel a major issue in this country is the growing inequality in wealth and your blog helps the “little guy” have a bit of a fighting chance to try to balance the scales and secure a retirement future. Keep up the good fight.
J: As for tracking market cap-to-gdp, the Fed provides the raw data here: http://research.stlouisfed.org/fred2/graph/?g=13Wz
I have also put up a public spreadsheet that shows how to use it (along with a few other indicators) as a forecasting tool here: https://docs.google.com/spreadsheets/d/1nP0IWMSAyMN8GlZjpM_TDJQYEI7-nE1htKpBD-C_Lqc/edit?usp=sharing
Finally, the biggest criticism of this indicator is that it doesn’t account for the foreign revenues of domestic companies. John Hussman has created a modified version of the indicator that does account for this. His latest weekly comment covers it in detail: http://www.hussmanfunds.com/wmc/wmc150518.htm