Sentiment Changes Quickly (January 11, 2016)

And just like that, the stock market is off to its worst start… EVER… When 2015 ended, things didn’t appear “great”, but sentiment was more or less still pretty bullish (as far as I could tell).

As I observe all the carnage that has already taken place in just the last 6 trading sessions, I’m reminded how quickly the tide can turn in the investment space!

Human psychology is always interesting to observe… It’s almost like we can go from “beyond bullish” to “exceedingly bearish” at the flick of a switch…

This morning, I participated in a good number of text conversations with other friends/investors, and even though it was through mere words, I could feel the air getting sucked out of the room…

The fear was widespread.

The mood was somber.

No one had a clue what to do next…

As an investor who remembers the financial crisis of 2008 most vividly, I can’t help but try and recall (compare) the feelings, emotions, and thoughts I had during those most tumultuous times…

Does this feel similar?

No.

Not yet… Although I think a lot of people are starting to wake up and realize that not everything is all “sunshine and lollipops”, the most recent market sell-off in the past week or so is still nowhere close to resembling the same type of despair that I remember observing back in 2008.

And please don’t mistaken, by no means am I trying to predict that what we are witnessing now will escalate to that same type of magnitude… But I think market shocks are always a good “gut check” for investors.

If you strongly believe in your thesis and gameplan, keep right on investing…

But at this particular stage of the game, there’s no way you’re gonna convince me to “buy the dip”… Not happening…

There’s a reason I sold out of all my stock positions in 2015 and converted it to cash (and gold mining shares)… In the current market landscape, I still very much believe that the risk vs. reward curve is skewed heavily towards the risk side.

I believe in the bull… but I also fear the bear.

Like I’ve said before, I could be totally wrong, and the markets could recover and go on to rally by 20% this year… When I made my decision to liquidate out, I accepted the consequences of potentially leaving some gains on the table…

I’m totally cool with that…

In times like these, though, I will gladly confess that I do feel reassured to be cash strong…

So, I’m gonna stick to that gameplan more than perhaps ever before…

Hoard cash.

  • I’ve got my cash flowing real estate (passive income trade).
  • I’ve got my gold mining shares (greed trade).
  • Now I want a lot more cash (sleep well at night trade).

It’s boring, I know…

Right now, I do wish I had less exposure to base metals (particularly copper), though… My mistake for jumping in too early.

 

I feel like this deflation in commodities is just getting started…

 

Live and learn.

 

Good luck to all!

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No Nonsense Landlord
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This market is no where near 2008. The economy is sound, although there is a tremendous deflationary pressure. Look for the Fed to slow the economy, and stock prices going down due to lack of top line growth. There is no pricing power anywhere in the world.

For the most part, people that want jobs are working. Homes are being paid for. Banks are not failing. Consumers have a larger discretionary budget as gas prices and home heating is cheaper.

It makes my 5.5% $188K mortgage I paid off look like a great bet last year.

Sean
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Sean

Wherever you park money is going to be volatile. Eventually the gold trade will take off as people start appreciating the insanity of western country debt obligations. If you take the premise that the most people are always wrong the most likely outcome is stock market decline 20-40% prior to massive move upward. More carnage in commodities and gold until V shaped turn in next 12-18 months. Stronger dollar than people can possibly imagine given fractured euro and emerging market debt valued in dollars.
I think there will be more opportunity to add in to gold miners come March April.
I cont to cost average in to blue chip non mining companies in to weakness due to my strong belief that money needs to eventually go somewhere other than cash and eventually will move in to stock and gold as the bond bubble bursts. Capital flows will be fascinating over next several years.

Financial Samurai
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The real estate market is next to fall. Do you still think it was good to increase your debt load to raise cash?

Btw, when will you be leaving your job? Don’t forget to negotiate a severance!

Randy
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Randy

Love your blog. I have been following your process. I do see that Sam believes the next fall is Real Estate. Do you agree?

Midwestern Landlord
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Midwestern Landlord

All these games of trying to figure out what the market is doing is one of the reasons why my comfort level is to invest in rentals that cash flow versus the stock market. I just don’t like the idea of investments that I have no direct control over.

A lot of people make money at it, just not for me.

mike
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mike

you do have direct control > buy or sell. easy

Midwestern Landlord
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Midwestern Landlord

Mike,

It sounds like it is working well for you. Have you retired yet?

mike
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mike

Truthfully, I am on the cusp except I want a much more comfortable retirement with zero restrictions so I am still making hay while the suns out.

for your reference:

http://postimg.org/image/4pgwkmy3f/

Hopefully you got on the money train with Jay and myself. 35% gains in 1 month. Some people were flat ALL year or lost money in 2015.

Midwestern Landlord
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Midwestern Landlord

Good to hear that you are close. I have seen very few examples of people that did it through stocks alone (early FI style).

Mike
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Mike

I have 5 properties and 8 with a partner. Who said anything about stocks alone?

Midwestern Landlord
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Midwestern Landlord

For comment below:

Nice to hear you are a fellow landlord as well. Now I know why you are on the cusp of retirement / financial independence.

joe
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joe

yikes.. the stock market is only up 50% in the last 5 years I am running for the hills..

mike
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mike

lets hear an update on how your gold plays have done YTD 2016 with all the rush to safe haven (once the stock market started vomiting it’s gains). I saw miners had some positive reaction/activity but I haven’t really followed. Did the gains dissipate? Are you in the black now?

just curious.

Noah
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Noah

Remind me: are you no longer with your day job? What do you do all day?!

These are great investment/real estate updates. Would be good to hear how you are.

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