Having called the crash here and got out of stocks on February 24th, people are asking me to tell them when I get back into the market.
The answer is now.
However, I am in no hurry and I’m back about 20%. So, I’m still 80% cash. Reentering now is not for the faint hearted and my advice to most people is ‘Buy the final leg of the W.’
Apologies but here is my basic chart again.
I simply can’t hold out that long so I have decided to slowly slip back into the market, early. Itsgoing to be turbulent ride.
I’m mainly a UK investor and the fall in Britain’s FTSE 100 is more than the SP500 at this point, so its base is nearer.
I am buying ‘poleaxed’ Big Cap ‘blue chip’ companies with historical fat dividends, who will not be obviously sunk by the hiatus of business we have entered in. I am also buying minute chunks of crazy ‘special opportunities’ some of which will bounce multiples while others will vanish in a cloud of ash and smoke. The main theme however is slipping back into small lots of beaten up titans, for a 2-3 year haul back to normality. In two to 3 months I will be fully invested
I can see myself being tempted at Dow 18000 but I terrified by the Nasdaq 100 at 7000 which is simply too high.
Dow 20-18000 is a good reentry point but Nasdaq 100 at 7000 is still a ‘nose bleed’ level. 5000 on the Nasdaq is the sort of level I’d feel safe with. The Nasdaq should fall more than the SP500. Nasdaq has the Beta so it should take the pain of that in a crash. Yet it hasn’t. This is unnerving.
Make no mistake, Google and Facebook are going to take a big hit to sales as advertising chokes for a few months. The technology titans are incredibly highly valued and in a crash that should work against them. It isn’t. They should be tumbling but they aren’t. They should be approaching 2016 levels but they aren’t even close. They aren’t even back to the 2019 QT correction yet.
Its not fate that the Nasdaq will capitulate, but I’m not plunging back into the market when the Nasdaq weighs over the whole situation like a sword of Damocles.
Nonetheless I’m easing in and if I can show enough discipline It will take me a couple of months to be fully vested again.
The downside beyond these current levels, meaning where we are now +-10%, say 18-20000 on the Dow, is the incredibly rare 75% crash as we saw with 1929 and the Dotcom. I just don’t see it happening though, but it cant be discounted. If we get that, it will be soon, so my tactic is to get in at the base of the first leg, catching a good low average for the long run over the next period whether its going in to utter meltdown or not.
By buying 10-20% of my normal position size, I am slowing myself down, keeping my finger on the pulse and experiencing the market malfunctions that generate the sort of fine market knowledge I need for the future. This process is also giving me lots of data points for how this market is going to pan out and these little ‘tells’ are crucial if you are going to be active as the roof comes in.
If I can slow myself down enough I will get a great result, but anyone dicing in this environment has to realized that its easy to be very wrong.
Buy the last leg of the crash W is probably still the best advice. The market feels like its starting to base in Europe but with US emotionally behind Europe on this journey, the market should have a few more big bear days up its sleeve. I’m banking on it.
While many people will leave the market and never come back, for those that are committed to the best way to build wealth over the long term, the issue is not if to reenter but how.
That moment will come and it will be when no one wants to buy. That day is not far off.