Jan 31, 2008: A mostly clear signal

  • A reversal of historic proportions
  • So what am I doing?
  • Reversal ETFs to consider
  • Lucky in 2007
  • A reversal of historic proportions

    This may come as a surprise to some. For the record, due to recent developments, I have "changed my mind" from November about U.S. bear-market prospects. I think the worst in US markets is now behind us. What I see brings back memories of less than 10 years ago. It looks like October 1998 all over again and I now believe we had a serious shock, but we're not going into a typical, prolonged, bear market.

    So I'm raising the "almost all clear" flag now. I've been buying in the past two weeks as I outlined in my previous column and I'm now getting almost fully invested in a selective way.

    What changed in the past 2+ months since I raised the bear flag to make me change my view of the markets in such a dramatic way?

    A lot. Let me try and summarize:

    Note that all the above has little to do with whether there's a recession or not. There may well be a recession. US house prices may continue to drop for a while, some sectors may take longer to recover, some companies will lay-off workers, and some will even go out of business. My thinking is based on the fact markets are about 6 months forward looking, that in every downturn there are sectors and asset classes which lead the downturn, and others which lead the recovery and are the first to move up. Financials have already been in a year long bear market, and they seem to be a good place to be now.

    So what am I doing?

    For the record:

    Some ETFs to consider:

    Leveraged ETFs (Feel braver? I would buy these on dips only):

    Lucky in 2007

    This is too good to be true, but my semi-neglected Marketocracy portfolio is now ([updated] as of this writing, Jan 31, 2008) over 16% ahead of the S&P500 for the past 12 months. Maybe more surprisingly, it is now way ahead of the m100 average (best 100 portfolios on Marketocracy).

    This wouldn't be so good in itself, but its beta vs the S&P500 is down to 0.37.

    With all due humility, in my best dreams I couldn't have imagined such out-performance with such low volatility. I'm attributing this to luck in making two recent calls:

    Luck can come and go. I made some mistakes too. I was two weeks early covering my leveraged ETF shorts. I should have waited for the cataclysmic capitulation. My record is by no means long enough to feel too good about it yet. This past 2 months record is not very likely to be repeated soon. I'm still working on the skill vs luck part.

    As always, every investor should make up their own decisions. The above is an approximate description of what I'm doing in my own portfolio, and is not a solicitation to buy or sell anything. Any feedback, question, request, criticism etc. is very welcome.

    -- ariel