Unforgiving Daily Market Playable, But Dangerous

Mark our market as a rocky road filled with sharp curves and potholes. My way of dealing with pricey, chaotic settings is to lighten up, oversimplify. 

Never go long more than 50% of capital. You’ll sleep better. The bond market calls. Should get some of your capital, 25% to 50%. Stay away from high yield bonds unless you thoroughly understand their underlying corporate fundamentals. Suddenly, a bond trading over par can sink to $75 if its fundamentals worsen suddenly. 

If you own high flyers like Tesla, ask yourself if you have an edge owning a piece of paper so volatile and impossible to sharply pencil. Tesla, ticks over $300 a share, trades over a hundred million shares, daily! What do you know about Tesla and its markets that can make you comfortable, day-after-day?

Are you big in energy? Capable to explain geopolitical issues impacting supply and demand? Buffett owns a chamber pot full of Occidental Petroleum which peaked months ago in the sixties, now ticking at $42. Exxon Mobil, a huge package, still a non-performer down from its $126 high  to $108,  presently. 

Some 60 years as an operator in the Grande Marché, I now own a bunch of 10-year Treasuries. With 30-year paper yielding near 5%,  I’m about to get my feet wet. Until recently, I’ve never owned a Treasury bond. It’s not what operators do. They hedge in the options market. 

I lived through the comeuppance years ago of Morgan Guaranty Trust’s portfolio disaster owning what they called “one decision” growth stocks I’m wary.  Let somebody else own Tesla, Meta and Salesforce. I’m worried enough owning volatile paper like Amazon, Goldman Sachs and Apple. 

Sadly, I’m unlikely to catch the next healthcare winner with a wonder drug,  and I no longer know any tech house operators on a first name basis. The good ole days for me were early sixties when the transistor was discovered by AT&T, and licensed to all corners. 

These days, there are dozens of money management operators with over a trillion buck asset base. Many of them turnover their funds by100% annually. They must be great salesmen, because they’ve retained base capital despite 100% turnover ratios and subpar performance numbers. 

If you’re a long-only player, before you invest a dime be satisfied that the valuation structure of the Big Board ain’t cock-eyed optimistic. If you can’t put a rational valuation on the Teslas of the world don’t play with ‘em. Go down the list of major market sectors. Financials rest on the high side,  nearly 20 times earnings. 

Cyclicals playable only if you believe the country isn’t recession bound. Already, metals like steel and aluminum have given back  much of their 12 month recovery. Unless you think the economy is set to quicken, wait for a later entry point. 

The energy sector, some 15% of the market, has attracted big players like Buffett, but he carries a big paper loss in a massive, almost controlling position in Occidental Petroleum. The chart on Exxon is a stutter step gone nowhere. 

So where dare you jitterbug with some of your capital? I won’t play banks that too often proved dumb bunnies and practically destroyed themselves. My exception is Goldman Sachs where I’m overweighted. This volatile piece of paper can wiggle some 5%, 15 points on a good day. If the economy comes up roses, Goldie will outperform the best of banks namely J.P. Morgan and Morgan Stanley. 

Lest we forget, be wrong on a market sector or old favorites like Schlumberger and Halliburton in energy and you can drop 40% before you know it. 

Simply, this portfolio collapsed in the 1973 recession. Morgan then reverted to traditional investing in GDP stocks. They shovelled a lot of dirt over such stupidity as Avon Products and Sears, Roebuck.