As I’m writing this, oil and energy stocks are being taken to the woodshed… again. It’s been another BRUTAL day, and who would have thought a few months ago than an investor could pick up shares of a high quality company such as ConocoPhillips (COP) for sub $48/share and a dividend yield of 6.2%?
What can I say? It’s getting ugly out there! Over the last 6-7 years, investors have been heavily spoiled by this bull run, witnessing stocks only moving in one direction (UP, UP, and UP!). As they so often say, “a rising tide lifts all boats“. Quite frankly, it hasn’t taken any degree of skill to succeed with stock market investing since an investor could have basically thrown darts blindly at just about any company out there and realized significant paper gains in a relatively short period of time over these last few glorious years…
At this point of the market cycle, it looks like the good days are finally coming to an end. Commodities (such as oil, copper, gold, silver, etc.) have been crashing, despite the fact that the major indices (such as the S&P 500) are still perched comfortably at the top of the totem pole.
There’s a huge disconnect and growing bifurcation in the marketplace today. You’ve got so many companies setting new 52 week lows, seemingly everyday — Walmart (WMT), Dover (DOV), Norfolk Southern (NSC), Emerson Electric (EMR), SolarCity (SCTY), BHP Billiton (BBL), COP, etc.
Oil, energy, transports, industrials, retail… you know, the building blocks of any growing or “recovering” economy!
While, on the other hand, you’ve got an equally good number of companies setting record highs — Home Depot (HD), Target (TGT), Visa (V), Netflix (NFLX), etc.
WMT is down in the dumps while TGT is shining bright… Very interesting! I also see other retailers such as Macy’s (M), JC Penney (JCP), and Sear’s (SHLD) still holding strong. If WMT is an indicator of what’s to come for retail, perhaps M, JCP, and SHLD would make for some tempting short candidates in the future (just a thought not a suggestion)!
But strangely enough, even the notorious bubble stocks such as Twitter (TWTR) and Yelp (YELP) have been taking a beating as of late… and are now at 52 week lows.
But the reality is this — until the “tech titans” of the industry take a major fall, most retail investors won’t care, and the media will continue on with their narrative of how we are in a thriving economic recovery and how everything in the world is just splendid! 🙂
So, right now, I’m watching the following companies very closely — Apple (AAPL), Google (GOOG), Amazon (AMZN), Facebook (FB), and NFLX.
If (when) those dominoes fall, the end of Happy Days will become official.
While the Fed is trying to distract us with concerns about a possible upcoming immaterial 25 basis point rate hike (and they can’t be serious about raising rates in this kind of environment), the real carnage is already taking place and wreaking havoc on investors’ portfolios TODAY.
They say that if you want a real indicator on the health of the economy, turn no further than to Dr. Copper:
Dr. Copper may not always be correct, but worldwide consumption of raw goods and materials is obviously slowing down, regardless of whether or not China continues to publish reports of sustainable 7% Y/Y GDP growth.
I don’t think any of us believe those claims to be true…
Market Cap to GDP
Not a fan of Dr. Copper? How about we use the Warren Buffett indicator? And who doesn’t love Mr. Buffett?
From Advisor Perspectives:
From Guru Focus:
In any case, as an investor, it really doesn’t matter if you are a bull or bear; the idea is to make money! There’s really no reason not to play both sides of the coin.
And right now, many indicators have turned bearish and we may very well be entering into the first stages of a new bear market!
I think we all know that it is damn near impossible to accurately try and time the market! I’m no expert market timer myself, but I’m trying to be a trends-follower. In other words, I don’t need to catch any EXACT market tops or bottoms to be successful, but I need to be moving along in the right direction…
Right now, I’m sitting mostly in cash.
And although it is very tempting for me to go on a buying spree, I remain convinced that the worst is still to come.
It would be nice to pick up shares of COP yielding at 6.2%, of course, but the same could have been said over the last few months when shares first eclipsed 5.0% yield…
Dollar-cost-averaging (DCA) is a great thing, but I prefer to execute that strategy in a rising bull market. On the way down, that strategy can be akin to “catching a falling knife”. And it’s safe to say that many investors have already been burned trying to get in too early… Many investors were loading up on Chevron (CVX) when it first hit $90/share… Right now, we are just on the verge of breaking through $80/share… and falling further by the day!
Quite frankly, no one knows how much further we have to go on the way down, so I’m going to do the easiest thing that I can do — NOTHING.
Again, you don’t need to catch the exact top or bottom to do well… Patience is a virtue and one skill that I’m trying to exercise at this time. The best returns are usually extracted from the market when other investors don’t want to touch a particular investment with a 100 ft. pole… With oil and energy stocks, there’s just far too many people rushing in right now for me to believe that the bottom is in…
Then again, my philosophy on investing has changed over the years because I’m now operating from a different perspective than before — My primarily focus at this time is on wealth preservation, not continued growth.
This means that I can afford to be EXTREMELY patient with the market. For instance, if oil and energy stocks decide to change course and shoot up to the moon again, I will be perfectly content with missing out on this opportunity.
I’ll simply wait for the next train to arrive at the station… It always does.
However, if you are an investor at a different stage of the early FI game, then your gameplan may deviate greatly from my own. You may elect to be more aggressive when good deals come around; that’s completely understandable.
For myself, quite honestly, I’m not hunting for “good” deals anymore. I want “amazing” deals!
But speaking of trains arriving, the sector that I continue to be most interested in right now remains to be gold and silver mining stocks. The decline in the miners has been far more devastating than anything that is going on with oil and energy and I believe that final capitulation is just around the corner. In this particular sector, no one is blogging about it and retail investors have ZERO interest in these stocks.
Even at all-time lows, mainstream outlets are still speculating on further declines in gold and silver mining stocks. Seriously? When a stock has already fallen 90% in 5 years, you are still issuing a “Strong Sell” signal? Wow!
News flash — Oil is a commodity and civilization needs to consume it to thrive. Silver is ALSO a commodity (as well as money) and industry needs to consume it to produce ever-sophisticated new electronic gadgets.
Oil is universally loved by investors. Silver (and gold) are unequivocally hated!
That’s usually a good indicator that the bottom is in… or we are close to one. While the majority of investors will continue to chase oil and energy stocks (for good reason), I will continue to load up on the miners, instead.
Oil is in Year 1 of its downturn; gold and silver are in Year 4.
Perhaps this time next year, I will tune in to oil and energy stocks with much greater interest?