Getting Back to Even
With the market down off of all-time highs, I want to know about getting back to even.
It is a fun read and a cautionary tale of listening to people’s advice. As Sartre says, you pre-select the advice you get depending on whom you ask.
How to Get Back to Even
Kramer suggests you have 5-10 stocks that you spend an hour per stock per week reviewing. You are diversified when you have at least five stocks, but having ten is like a part-time job since you must spend 10 hours a week reviewing the financials and learning all about the corporation. Because why – do you have a chance to know more about it than the analysts do? Wow, there are so many things wrong with this idea!
But he says the lost decade (2000-2009) proves that buy and hold doesn’t work. He actually calls it buy and forget about it because you never look again, and so you don’t know when to get out of the market. Does he forget that no one knows when to get out of the market?
Instead, he suggests you own GLD. Well, ok, a lot of people say you should own up to 10% gold. Not sure why, but they do. Diversification? Protection? All the above? Ok, GLD did well until about 2012, and at that point it, too, has had a lost decade.
Then, you must actively trade your 5-10 positions when they no longer work. Huh?
Own “safe” dividened paying stocks. He goes so far as to say that this is the best defense for getting back to even. On offense, of course, you might want to own tech stocks. Like this mobile internet thing which is a new product cycle. These tech stocks can be “10x tsunamis.” Own:
AAPL – you got to love this, the split-adjusted price of Apple was 3 bucks in 2009.
PALM – Ok, this one went extinct in 2012
RIM – which was about the same time BlackBerry died, too. Well, he got 1/3 right, but, of course, AAPL is the great success story of the last two decades.
And next, bank stocks. Own bank stocks.
Finally, deep-in-the-money calls are not risky when used correctly. He writes a lot about options. That is the way to get back to even. That and stocks.
So, that’s Kramer’s advice from 2009.
How to Get Back to Even
Don’t sell low. When you have the money, buy everything (the total US stock market) and never sell it. Look back at when you bought it. Remember, it has no value today (the number isn’t important). It only has value the day you buy it and the day you sell it.
His Stock Picks
Just for fun, let’s look at Kramer’s dirty dozen stocks he picked back in 2009.
CAT – a good, solid call.
MMM – worked until 2018 and has been very disappointing since then. But of course, Kramer knew that and sold, right?
EMR – founded in 1890, I still haven’t heard of Emerson Electric. My version of EMR is what they use in hospitals to pretend to document patient encounters but is really an insurance billing machine.
V – it’s Visa. And UNP (Union Pacific Corp). PPG. Hewlett Packard.
COP – ConocoPhillips did nothing until post-covid, then we know what happened to energy stocks.
BHP – This seems to be a mining stock and has gone nowhere since he recommended it.
HD – Home Depot has been a winner!
VFC – is a holding company for outdoor brand-name apparal. What the heck happened to this stock this last year?
JMP – and finally, JP Morgan.
So, there you have 12 stocks but remember you have to research each one of them for an hour a week. And index funds don’t work because of the returns from 2000-2009.
Honestly, given the last decade we have, it would be hard to pick 12 stocks that didn’t, on average, go up. But active investors who trade can do it; I’m sure of that!
Twenty-Five New Rules for Post-Apocalyptic Investing
Ok, so that is a fun trip down memory lane. What about the new stuff he wrote in the book back in 2009? What are the new rules for investing?
Of course, 25 are too many to include in this little blog, but we will have fun with the juiciest ones first. After throwing financial media under the bus (good, that’s where they belong), he says you must watch his show to get the real scoop on what is happening. Do you think he has a personality disorder, or is he just acting like he knows what he is talking about? How does that go? There are fools, people who know they are fools, and people who know they are fools and trying to sell you something.
Anyway, his first point is that companies manipulate their balance sheet to get low-quality, sleight-of-hand upside surprises in their earning reports. That is a game that everyone seems to know about.
Next, know which indicators matter, and they change in a heartbeat. He thinks you must have a thesis on the economy before investing. My thesis is that the US won’t fail during my lifetime. That’s all I need to know to invest (we are the best of all the bad options).
Follow the dumb money. What did he think of ARKK?
Next, he opines that dividends are more important than buybacks. Ok, I see some merit to that, but there are a lot of buybacks going on, so they must be important. But then again, he thinks technical analysis is important (except when it isn’t). My, investing is getting pretty complicated.
He talks about the dangers of ETFs, especially sector and leveraged indexed ones. Well, who could disagree with that? But the real danger, of course, is stock picking!
Kramer says to change when you are proven wrong. Will he take his advice over the next decade of amazing returns in US large growth? He also says academics don’t know anything about investing since they prove his lifestyle wrong. Interestingly enough, he states that we should not pay attention to manufactured news. Every day new needs to tell a story. Most days, that story didn’t need to be told. Reason enough never to watch the news.
Two Final Calls
Finally, Kramer has two really great calls I’d like to highlight. First, in 2009, he stated that China is more important to the global economy than the US. True or not true in 2009 and now?
He also knows how to call a low. It is when credit is so tight that companies cannot afford to keep any inventory, and they dump it. Low inventory due to lack of credit signals a bottom.
Those two final calls come to fruition as he tells you to go to cash or gold when he tells you to. That’s how you get back to even. Go to cash when Kramer says so. He says:
…(2008 is) an experience that brutally shocked all of us into rethinking some of our course assumptions about investing.
His last tip is that investing is more difficult now than ever. It is ironic that he said that in 2009, since then, US Large Cap has dominated, and simple, low-cost, broadly diversified US total or S&P500 ETFs dominated. Investing hasn’t gotten harder; they are just better at confusing you. Investing is easy. When you have money, buy everything and then don’t sell.