Don't play the bottom guessing game
Apr 13th 2009 6:30PM
Updated Dec 4th 2009 1:09PM
It's been funny over the the past week watching various analysts, gurus, journalists and economists weighing in on whether now is the time to get back in the stock market. With the Dow and S&P at a one-month high, the technical analysts are out in force combing their charts for patterns of historical behavior. Is this a false dawn, the setup to an even bigger fall? Or should we call "bottom," even if that means technically we missed it by about four weeks?
I say "funny" because everyone knows it's virtually impossible to time the market, and that doesn't change just because it's lost nearly half its value in 18 months. A perfect example of the conflicting passions and neurosis currently at work came last Thursday.
That's when Wells Fargo (WFC) announced that it expects to post a record first-quarter profit of $3 billion (up about 50 percent from a year earlier), due to better-than-expected performance from Wachovia, which it acquired in December, and a strong performance in mortgage lending. So afraid were the market timers that they had missed the boat, that the Wells news was all it took to send the market soaring higher, even though no one has actually sifted through the quarterly report -- which is not due out until April 22 -- for themselves.
I am not surprised that the market is up, and I have been putting cash to work for the past six months, but not all at once, and not without recognizing that I might be early, and not without a plan. This has included buying WFC most recently at $12 and selling naked puts at strike prices of $7.50, $9.00 and $12.00. (Before you start calling me Nostradamus, read my post trashing the silly monk. While you're at it, also check out last month's Chasing Value: The safest bank in the U.S. -- Wells Fargo. And if you must insist, I prefer "Sheldondamus.")
If you missed the recent market pop, don't fret, and whatever you do, don't chase it, lest this really is just a bear-market rally and you get clawed to death by the volatility still to come. What might be most prudent at this point is to segment the money you want to put back to work into four or five tranches and invest on a regular basis, dollar-cost-averaging back in over time. There's no percentage in trying to be first on your block to call "bottom," anymore than there is clinging to the satisfaction of telling all the wishful thinkers "I told you so."
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of WFC and I have open options.