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When's the Bear Market?
by Rob Landley Austin, TX (July 24, 1998) -- Okay everybody, deep breath. Breathe. Breathe! Okay, now repeat after me: "Keep going down! Keep going down! Keep going down!" I am, of course, referring to the stock market. The S&P 500 had four consecutive down days this week. The Efficient Markets Theory would insist that something must have gone really wrong with the American economy, but I can't find it. My Leibnitz Pre-Harmonic Oscillator shorted out after I dropped it in the bathtub. And last Tuesday, I fumbled my crystal ball on the kitchen floor, spent all day mopping up the mess. So I claim no more stock-predicting insight than you or any other bloke without "expert tools for market-timing" (I think I read that in a spam mail last week). The market goes up, and it goes down -- a little bit like a yo-yo. I know it's headed more up than down, with some sideways in there, too. But I don't know exactly when. Which would make me a very bad interview on CNBC. In the meantime, I'll be cheering for the market to go DOWN. Sorry, Fools, but the Cash-King portfolio is less than one year old and I'm just 26 years old. We all have varying time horizons, but this portfolio will be holding its stock for at least ten more years... before we'd ever consider cashing out and moving to Tahiti. Gentlemen and ladies, we are buyers. Buyers like it when prices go down. We can get that washer & dryer for 10% less; we can pick up that crystal lamp at 25% off; we can buy the round-trip ticket to Aruba at a 15% reduction; those hiking boots have been marked down 5%; the copper pots, the waffle iron, the set of knives, the wooden stools, and the candelabra, all 20% off. Buyers like it when prices go down. When the Cash-King portfolio adds $2,000 of savings in early August, we're not likely to make our buying decision based on price. But that doesn't mean we wouldn't like a little 5% markdown across the board 'twixt now and then. But there's more benefit than that! Our companies themselves are buyers of their own stock. If they get opportunities to buy it back at bargain-basement prices, they can significantly concentrate (the opposite of dilute) our ownership position in the company. When the stock of an otherwise healthy company gets cheap, when the business doesn't change, it just makes for a great opportunity for long-haul investors. The professional financial media today tend not to see it this way. They get most excited about a given company when its price has already risen. And they get "worried" for the "middle class" should the market tumble. Unwittingly, they're promoting momentum investing, where you buy because the price just went up and sell because the price already went down. None of the real money portfolios here at The Motley Fool have ever been through a major crash. The "Asia Scare" last year doesn't count. And this week's dip is laughable. But most of us are probably old enough to remember 1987 -- where from peak to trough, between August and November, the market fell more than 40%. Many individual investors lost substantial cuts of their savings, despite the fact the crash only lasted a few months. Why? They panicked. They sold. Even though, in most cases, they still had 10, 20, 30 years or more to invest. For no other reason than that the price of their stocks had gone down, they sold. They didn't see value in the companies that they owned, instead obsessively focusing on numbered papers, digital ticks, and the market's mood. The Fall of 1987 presented long-haul investors with one of the greatest buying opportunities of the last 100 years. Fortunately, to the annoyance of fund managers everywhere, individual investors are getting more and more Foolish by the hour -- buying on the dips if they have five years or more to invest. And that's why the current dip may not last into next week, let alone until the Cash-King Portfolio's August investment. Darn it. It's so much easier to compete against those with a short-term focus on stock prices. Darn it. People out there are beginning to realize that the price quoted for a given stock often has little to do with the realities of the business (read: K-tel at $40). These same people are popping up the hood to peek at the engine before buying and trading in their old model. Learning how to read financial statements may be a hassle, but after enough study, you can concentrate less than 20 minutes on the quarterly reports of your businesses. With a spreadsheet and an eye for what to look for, it's clickety-click, lickety-split. Without that knowledge, the market is only so many squiggles on a graph, so many chances on a tip-sheet. If you must rely on just those, at least consider getting a job writing for a financial magazine! We think we can move you beyond that -- into a Foolish understanding of businesses, their financial statements, your savings, and profit. And thus -- our 11 Steps to Cash-King Investing -- written for everyone. Print it and distribute it at your leisure. (Just not for profit, or we'll have to sick TMF Law on you.) The early returns have been strong (C-K Performance). The enduring returns have been smashing (Past Ports). In the meantime, if you're under the age of 90, say it out loud with me: "Get down, market, get down!" Have a very Foolish weekend. - Rob Landley (Oak)
Cash-King Strategy Folder
Day Month Year History
C-K -0.05% 2.65% 17.06% 17.06%
S&P: +0.09% 0.61% 13.93% 13.93%
NASDAQ: -0.21% 1.92% 16.83% 16.83%
Cash-King Stocks
Rec'd # Security In At Now Change
2/3/98 24 Microsoft 78.27 113.81 45.41%
2/3/98 22 Pfizer 82.30 113.50 37.91%
2/27/98 27 Coca-Cola 69.11 83.44 20.74%
5/1/98 37 Gap Inc. 51.09 58.69 14.87%
6/23/98 23 Cisco Syst 86.35 97.75 13.21%
2/6/98 56 T. Rowe Pr 33.67 37.63 11.74%
5/26/98 18 American E 104.07 107.06 2.88%
2/13/98 22 Intel 84.67 83.06 -1.90%
Foolish Four Stocks
Rec'd # Security In At Value Change
3/12/98 20 Eastman Ko 63.15 84.75 34.21%
3/12/98 20 Exxon 64.34 70.38 9.39%
3/12/98 15 Chevron 83.34 83.00 -0.41%
3/12/98 17 General Mo 72.41 71.06 -1.85%
Cash-King Stocks
Rec'd # Security In At Value Change
5/26/98 18 American E 1873.20 1927.13 $53.93
2/3/98 24 Microsoft 1878.45 2731.50 $853.05
2/3/98 22 Pfizer 1810.58 2497.00 $686.42
2/27/98 27 Coca-Cola 1865.89 2252.81 $386.92
5/1/98 37 Gap Inc. 1890.33 2171.44 $281.11
6/23/98 23 Cisco Syst 1985.95 2248.25 $262.30
2/6/98 56 T. Rowe Pr 1885.70 2107.00 $221.30
2/13/98 22 Intel 1862.83 1827.38 -$35.45
Foolish Four Stocks
Rec'd # Security In At Value Change
3/12/98 15 Chevron 1250.14 1245.00 -$5.14
3/12/98 20 Eastman Ko 1262.95 1695.00 $432.05
3/12/98 20 Exxon 1286.70 1407.50 $120.80
3/12/98 17 General Mo 1230.89 1208.06 -$22.83
CASH $94.76
TOTAL $23412.82
*The year for the S&P and Nasdaq will be as of 02/03/98
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