by Jason Bodner
March 30, 2021
We’ve all had days where nothing goes right, like there’s a conspiracy against us. Judith Viorst wrote a book dealing with this, called Alexander and the Terrible, Horrible, No Good, Very Bad Day …
When I have a bad day, I try to cheer myself by reading happy facts like this: Did you know that blind people smile even if they have never seen anyone else smile back? It’s just a natural human expression.
Feel better? Well, even stuff like that doesn’t always work when everything seems to be going wrong.
The last few weeks, I felt like I was having a series of terrible, horrible, no good, very bad days. I fell off my bike going precisely zero mph and broke my elbow. Then I made some innocent remark that exploded into a major offense. And then some stocks I touted less than a month ago got taken to the woodshed, skewered, and roasted into oblivion. I needed my mom to give me a big fat hug and a nice bowl of soup.
Here’s the reality: There’s no conspiracy, but it certainly feels that way sometimes. And that’s a good thing, it helps us learn a lesson. After all, what use is a crappy day if we take nothing positive out of it?
Investing is directly tied to our wallets, so even the most analytical of us can get emotional when markets turn against us. Since mid-February, some of my favorite stocks have been under fire for seemingly no reason at all. Growth and tech stocks have come under attack as the “reopen” theme gathers steam in the hearts and minds of investors. I keep reminding myself that the way I invest is to buy the best stocks that Big Money buys. The best ones have growing sales, earnings, profits, and are in leading businesses. When Big Money loads up on those, my research says that I have great odds of winning long-term.
But sometimes the market doesn’t agree, which makes me cranky, so I buck up and try to buy discounts. Then they go down some more. I feel yucky. And when I watch them go even lower, my eye pops and my stomach drops. I reassure myself that it’s temporary and will pass. Then I watch them drop more. It’s at this point that I want to pull the covers over my head with some Cherry Garcia and good blues music.
Last week I watched a market car crash as some terrific Chinese stocks got absolutely hammered. I had just bought some myself, recommended some to others, and felt great about it. I used the same working process for decades, but the setup that felt so right quickly turned wrong through no fault of my own.
First, some headlines surfaced that China was contemplating tighter regulation on data collection for Chinese stocks. That gored some lofty stocks like a big-fat bear paw. Then the next swipe came as some unsubstantiated rumors came out that Chinese ADRs risked getting delisted due to accounting standards.
The one bear paw turned into bear “jazz hands” swiping gleefully at the beaten-down Chinese stocks.
It felt bad. But then things got worse.
Friday saw some phenomenal Chinese stocks in free-fall – a nightmare scenario. I was Alexander in the midst of his Terrible, Horrible, No Good, Very Bad Day. Then suddenly, intraday they started to recover. And while I felt bad, my main-man-partner “got-in-there,” took advantage of dislocation and sold puts on some of these stocks. It felt terrifying, but that’s how well-timed put sales go. So far, it was the right call.
Then, on Saturday an article surfaced that a financial institution liquidated an estimated $10.5 billion of stocks on behalf of a shadowy client, presumably a hedge fund on its knees. Don’t forget: If you own great stocks that temporarily go down, no-one can force you to sell unless you used leverage. When margin calls come in, and you can’t meet them, you are forced to sell. I’m not saying that’s what happened here, but I handled big-time liquidations back in the day, and they’re not pretty. Friday looked like that.
Separating emotion from decisions, I look at data to picture market mechanics. The Big Money Index is falling from an absence of buying and a small uptick in selling. It means buyers just aren’t out there. That makes sense too: Q4 2020 earnings season ended and we’re waiting for Q1’21 to start. Liquidity is low, volumes have fallen from highs; the climate is ripe for volatility. It’ll likely stay bumpy for a little while.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
Then the clouds will lift. Earnings will be strong. Great stocks will go up-up-and-away again. But I feel grumpy now, going through it. I shouldn’t because I knew this already and you did too because I told you.
Let’s revisit the predictions I made for 2021. On December 20th I wrote this (with follow up in BLUE):
- The market went overbought on December 2nd.
- The market will remain overbought until January 13th, 2021 – I WAS OFF BY 30 TRADING DAYS
- The Big Money Index will peak on Monday December 21st, 2020 at an S&P 500 level of 3731.56 – I WAS OFF BY 2 TRADING DAYS AND 98 BPS
- The S&P 500 will peak on January 18th, 2021 at a level of 3828.50 – OFF BY 20 TRADING DAYS AND 278 BPS
- The S&P 500 will then fall until Monday April 19th, when it will trough at 3341.81 – TBD
So far, the reality is playing out pretty close to how my data said it would. My data also says we have great things to look forward to in terms of stocks in the coming months. So, I am going to put my no-good days behind me and look to the future. Better yet, I’ll keep looking for opportunity in the volatility.
We all know that bad days will come. Then they go. The key is to approach life as positively as you can.
It’s like this appropriate T-shirt message says: “If every day is a gift, then today was socks.”