to Cope With Today’s Volatile Bear:
of Your Questions Answered
Van K. Tharp, Ph.D.
I’ve been getting a lot of questions about
this market. I actually
am putting on an extra Blueprint for Trading Success workshop which
answers a lot of these types of questions, but it is already sold out.
As a result, I thought I'd give you some of the answers
you’ve been requesting in a dialogue format.
I’m retired and much of my retirement income has been wiped
out. I still work and
need to know what I can buy to still make a little extra money.
If I directly answered that question with
recommendations it would be high risk for me.
I don’t give recommendations… I teach people how to
generate their own. People
who are asking me for recommendations are not taking personal
responsibility, so they’d also be likely to blame me if my
recommendations did poorly. Giving
recommendations is just not what we do.
First, there are newsletters out there that are
excellent. The two best
are True Wealth and the Weber
expect any recommendations out of Chris Weber right now because he
believes, as I do, that the bear will not end until PE ratios for the
DOW and S&P 500 get well into single digits and yields are
around 7%. We have a
long way to go down before we achieve that.
Steve Sjuggerud has been giving recommendations
and getting slaughtered over the last year.
He tends to buy things that are hated, but his idea of an
extreme doesn’t include 10 standard deviation extremes and
that’s what’s happening in this market.
Nevertheless, Steve’s track record over many years is still
excellent, and I expect him to do well once the carnage is over.
There was another newsletter that ranked really
high when I wrote the second edition of Trade
Your Way to Financial Freedom.
However, that newsletter doesn’t take profits.
And over the last two years all of the profits that his
recommendations had generated have now been wiped out.
In fact, three weeks ago he said that his best recommendation was a stock that they still had a huge profit in.
And he said it was dirt cheap at its current price.
Yesterday, that stock was down about 65% from the level three
weeks ago when he said it was the best deal out there.
should I do?
Strategies for Financial Freedom, I recommended several
strategies that are appropriate for this market.
The inverse mutual fund strategy would have done very well.
In addition, the Graham’s number strategy is getting to the
point where there will be lots of qualifying stocks.
However, that strategy will still lose money if you don’t
wait until the market turns around.
For example, I recently bought a stock at $27.50 that had $23
in cash and $119 in total liquid assets.
The cash seemed like a good protector for the stock.
However, it’s now selling at about $20.
Watch my market type indicator and don’t
invest until it turns bullish. And
even then keep 25% trailing stops.
about the advice that I keep hearing that stocks are now bargains
and I should hold on if I don’t need my investment soon?
I heard that advice at the beginning of this year when we
were clearly in a downturn. Now
you have to make 100% on your money to break even from those levels.
You are not likely to make 100% any time soon.
In fact, the stock market to the best of my knowledge has
never been up 100% in one year.
That’s why 25% trailing stops are the intelligent
alternative to buy and hold. When
those are broken, and they were broken a long time ago, you need
to get out.
Nothing is a bargain now and I would not
consider buying until my market type switches from bear volatile to
bullish. And that’s
probably at least three to six months away.
And even that is not indicative of a long term buy. We could
still have another very nasty leg down to this market.
Short term traders (day and swing traders) who
have mastered themselves are doing quite well in this market.
Most are not at that level.
you expect this market to go?
Well I’m not sure what the current PE
ratio is on the S&P 500. Perhaps
it’s finally reaching its normal level of 15.
If that’s the case, with the current S&P 500 at 750,
you could probably expect another 50% decline from here—at least
before we can reasonably expect a bottom to this market.
When you hear the talking heads on television
saying that maybe you should sell out, that’s when we’ve
probably hit a bottom. As
long as they are saying, “don’t sell at these prices,” we’re
near a bottom now… then we are probably a long way away.
can it get?
Well the average American family (who had some
wealth) has probably seen their net worth drop by about 50% in the
last 12 months. Part of
that is due to the drop in real estate prices and part of that is
due to the drop in equities.
However, U.S. banks are in fairly good shape
now compared to some European banks with huge exposure to emerging
markets in East Europe. I
expect many countries to have a huge problem because they are in
worse condition than the U.S., but they cannot borrow.
And many banks in Europe have lent money to those countries.
Right now, in contrast, the U.S. can and is printing all the
money it needs and that money is still the world’s reserve
Steel mills are cutting back to 50% capacity or
shipping has dropped 80% or more.
Those effects have not been felt in the economy and in the
market yet. What if the
revenues of the major U.S. companies drop 50%?
Then we could see a DOW at 1000-2000.
And at that point, pension funds will be saying they will
never again invest in the stock market.
information is way too negative for me. Can you give me something
I actually agree.
If you start thinking too negatively, then your world will
turn upside down. You
attract into your life what you think about.
So here is what I recommend for most of you.
First, consider doing the 365 lessons of A
Course in Miracles (ACIM). You’ll
basically learn that all of this stuff about the economy is
meaningless because it only has the meaning that you give it.
In addition, you will learn that “Nothing real can hurt me
and nothing unreal exists… Herein lies the peace of God.”
Start doing those exercises regularly—get through the
first 100 lessons and watch
your life change.
Second, listen to the audiobook The Secret. In fact,
listen to it about three times.
When you’ve finished it, then start a gratitude journal and
notice how that thinking changes your life.
Rhonda Burne, the author of The
Secret, has an excellent gratitude journal.
Third, consider doing the 40 exercises in the Abundance
Book by John Randolph Price.
Do those exercises more than once.
Do at least 100 exercises in ACIM, complete a
full Gratitude Journal, and do the 40 exercises in the Abundance
Book at least three times. When
you do, assuming that it totally changes your thinking, I can pretty
much guarantee that your life circumstances will improve
You can get ACIM
and the Abundance Book
through our web site. The Secret audiobook and Gratitude Journal you can get at any major
bookstore or through amazon.
Van Tharp: Trading coach, and author, Dr. Van K. Tharp is widely
recognized for his best-selling book Trade Your Way to Financial
Freedom and his outstanding Peak Performance Home Study program
- a highly regarded classic that is suitable for all levels of
traders and investors. You can learn more about Van Tharp at www.iitm.com.