Buying the dip: slowly getting back into the pool

I’m currently feeling the same way I felt in mid January / early February 2016 about us equity markets: I’m a marginal buyer of US equities, and believe that on balance, being a buyer from current levels and below will look smart 6-12 months out.

A few thoughts:

  • The possibility of a trap door to the 2,300-2,400 zone on the S&P 500 should be taken very seriously, but you have to assume one can’t / won’t bottom tick price, and that buying should be approached as a process, rather than a snap decision.
  • I don’t think we will see 2,100-2,200 levels this year, barring some 9/11 or impeachment type of event (at which point US equities will be a Super Strong Buy).
  • I don’t think highs are in for the year.
  • I prefer buying US equities ex FANG/Tech.
  • I prefer buying US equities over foreign equities (the concurrent weakness in the USD and US equities will not persistent indefinitely, in my opinion).
  • The chirping on and on in January of this year about 2018 being a near guaranteed up year based on various statistics have all but disappeared. That makes me very happy and bullish.
  • Single stock short selling will, on balance, remain a gainful endeavor…even if the major indices were to melt up later this year.

I conclude this post with a story:

What the 2016 US Presidential Election Meant to Me

The week of the US Presidential elections (and on actual election day), I was on vacation (a diving trip), in the middle of the Pacific Ocean. I had spotty and slow internet. I had been very very short in the weeks preceding the election, and covered most of my short exposure prior to my vacation (this turned out to be the right thing to do, though it was a stroke of luck, not genius).

On election night November 8th, 2016, our boat was on its way back to shore. As the likelihood of Trump’s victory was increasing, S&P futures were falling… everyone around me (non markets people) were panicking, saying the US stock market would crash, that the US was doomed, etc etc… this gave me the itch to buy the dip.

I had low gross exposure, and some remaining single name short exposure. Around 10pm – 11 pm EST (I was in a different time zone), I was about to enter some buy orders (for the eminis), but stopped myself for the following reasons:

  • I had slow and unstable internet (slow enough such that the real time futures quotes were somewhat delayed on my phone).
  • I would be back on shore within 2-3 hours, upon which I would have stable internet.
  • I thought the decline in overnight futures would carry through to the US cash open…
  • I had already had an amazing year (returns wise) through November 8th, and wasn’t feeling particularly greedy at the time.

As a matter of fact, futures bottomed around the time I was going to start buying, and slowly drifted up all night, until us cash open…(I blame Icahn, Druckenmiller, and others for holding the bid!)

Bottomline: I was trying to bottom tick, and missed a huge profit opportunity. The current market character differs from November 2016, but I remain convinced that it is more costly to try to bottom tick a market, rather than approaching buying methodically.

 

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