Investors debate market timing and buying signals amid

The Most Important Thing

risk is largely a matter of opinion

Todd Smith

·4 years ago

shared a media post in group #The Most Important Thing

Hello all,

Heavy cash holders (including me) missed a lot of gains this year so far. S&P 500, Nasdaq, Precious metals, Bonds and even Crypto are all up YTD.

Personally, I transitioned to cautiously bull in March because bears ran out of catalysts that will break the market. Market shook off bad earnings, recent Fed hike and regional bank crisis. CPI data next week will probably show continuing decline in inflation. Fed is almost done hiking (probably 0 or 1 more hike). Bonds market is expecting massive rate cuts EOY. Recession expectation went up last month but market kept rising. Q2 earnings will likely not be great but less than feared and market will probably shake it off.

Bears were expecting a market flush and capitulation but it will likely never happen as long as many investors are cash-heavy and have jobs.

I considered waiting until May, after earnings, and start buying regardless of the prices.

If you have not bought already, what is the signal you are waiting for to start buying?

Disclaimer: I am currently 60% cash, 40% stocks. My ultimate plan is to reach 60% stocks and 40% cash by end of year.

Hello all,

Heavy cash holders (including me) missed a lot of gains this year so far. S&P 500, Nasdaq, Precious metals, Bonds

Alex
If a slowdown is a "foregone conclusion,...
Overall this is a good reminder, but to be fair we don’t have to be the first ones to the right conclusion to make money We make money if we get there earlier than the CNBC retail investor crowd, and fade their fear/greed

Nate
Bought in June and October and other times bc it was down so much. If I hadn’t,I’d be wary of buying now but at the same time I don’t think we’re going to go back down to the lows. I’d say the pullback we just had in February back to 3800 ish areas is where you need to be buying , if we get back there. Just as likely we churn around here for awhile. 🧐 Market closed yesterday around 19% up from the bottom. So good thing you’re comfortable missing the first 20% 🙃

Todd Smith
Overall this is a good reminder, but to ...
I'm trying to, but can't agree that your point applies here. The media has been blaring oncoming recession and negative impact on the market for over a year now. But now in April of 2023 you think we're among the first one to realize that the market can drop from here? This seems like the exact opposite of trying to fade the crowd, in fact it is a trade that has been discussed non stop for over a year. The retail crowd is heavily bearish right now, as evidenced by the weekly AAII Sentiment Survey which has rarely been less bullish or more bearish. You are trading "with" the crowd with your suggested trade, not against it. Same, with hedge funds, which have the largest short position in a decade. So, you are "contrary" by thinking the exact same as retail and hedge funds? You are a "step ahead" of the CNBC crowd by doing the exact same thing as retail and hedge funds? OK. Your insight about fading the crowd is just repeating a fundamental investment principle based on contrary investment sentiment, but the opposite of the situation here. If you sell here or wait for new lows then you are doing the exact opposite of fading the crowd. aaii.com/sentimentsurvey

D J
I know I can’t time it, am long-term so I’m just ignoring the roller coaster because I’m buying individual companies. I have few hedges. I just wait for prices to go where I want and when it’s there, I start a position. If prices get worse, I allocate more. I have about a dozen+ core positions and smaller (<4% allocation) positions. The portfolio is pretty concentrated. The macro matters somewhat. But most of it is noise, even quarterly earnings aren’t that important for me. I obviously look at the data for the companies, but it’s of no real concern if those companies don’t hit every performance metric set out by wallstreet. If i try consuming all of this information, including the macro factors that mentioned in this post, it’d probably just cloud my judgement. Tldr; I just aim for reasonable bets at reasonable valuations. Go to sectors that i understand. Write down why i bought and write down what needs to happen to break my thesis. Buy and hold. If my thesis breaks, I sell.

Alex
To be clear, I’ve been positioned bearish since the end of 2021 (and made plenty of posts in this forum along those lines during that time) Year to date gains/losses don’t really matter for anyone except hedge fund managers whose comp is tied to this metric. Similarly, there’s no prize for buying the bottom perfectly if we also buy multiple head fake bottoms along the way down Our North Star should be gains across the full market cycle, not vanity metrics. We don’t know how bad this recession will be - we could see more big credit events or not. I feel a bearish bias is appropriate while we are still reporting worsening economic numbers, companies and Wall Street are still revising numbers lower, and we are still tightening money supply. Fade the crowd means using situations like the bank run panics to cover shorts down to a minimum position, and reloading back up when retail investors prematurely get sucked into believing we are out of the woods (or hedge funds panic cover like yesterday) No one can time trades perfectly, but the tool I pay for (Hedgeye) gives daily quantitative signals based on price, volume and volatility to help contextualize where the market is at and time trades We can also look at how past bear markets played out and know that we are likely to see more drawdowns of 20+% from here, along with more epic bear market rallies along the way. Howard Marks’ writings are great for providing this context Another principle that can help with reducing volatility, especially in a choppy market: never be naked long or short, always have hedges on For example, instead of being simply long or short the S&P, go long the defensive sectors in the S&P (utilities and healthcare) and short the cyclicals that are just now starting to report the reality of the economy slowing (industrials and retail). You can still participate in rallies and be less exposed to drawdowns with this approach. At some point once we are done reporting economic gravity and past the start of an easing cycle, I will flip the above and be shorting defensives long cyclicals

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