August 09, 2007

Brag About Next Year and the Devil Laughs

YOU CAN TELL THAT old proverb was coined before God created program trading and tranches of collaterized debt obligations, because it needs an update for the modern age. Such as, "Brag about next week and the devil laughs." Or perhaps, "Brag about the next trading session and the devil laughs." And on especially bad days, "Brag about how the market will do well prior to the last hour of trading and the devil will laugh so hard he collapses on the floor shrieking with laughter, holding his sides and trying desperately not to wet himself."

Not that I'm bitter. Of course, I'm trying to look on the bright side of all this volatility as of late. As a buy-and-hold, long-term investor, I must watch the markets knowing that the hedge funds and speculators and Wall Street traders are gaming the market day in and day out, aiming for the lightning-quick kill. This means two things. First, the S&P 500 might go up 1.8 percent one day and down 1.9 percent the next, but there's nothing I can do about it, so there's no point in worrying. Second, all this volatility must mean that somewhere, at least a few hedge funds must be getting whipsawed like nobody's business, which means the investors in them are getting whipsawed, and the hedge fund managers are watching their accumulated gains (and their potential for future fees) go up in smoke. That's kind of cheering, in the way that hearing Pol Pot died was cheering.

Now, many investors know that in times like this, the only thing you can really do* is hold on tight. If the next Great Depression comes tomorrow than everyone is lost and we'll all be fighting in the bread lines; but if the market reverses itself eventually and people start looking for gains on the long side, things will improve and so will one's investments. That's far more likely to happen than the bottom falling out of the market. The time for selling, if there truly was one, was before the correction, not during it, and selling now just to get back in when things improve makes no sense at all.

Of course, I'll be the first to admit things are a lot more fun when values go up, as God and nature intended. It's Particularly Not Fun to watch one's investments slowly decline in value for absolutely no reason other than people are panicking. That's what's causing this whole mess right now. Oh, sure, you can talk about CDOs and credit crunches and all that, but the root of this is panic. As with all panics, people eventually wake up and look around and wonder what the hell they've done and why they've just woken up in New Orleans.

Which brings us to the interesting news of the day -- word that horrible godless spammers are engaged in a massive pump-and-dump operation targeting some no-name pink-sheet penny stock company out of Florida, and clogging everyone's e-mail boxes with spam promoting it. However, the spammers stupidly sent out so much spam that it got everyone's attention -- to the point where on the official Pink Sheets site there's a little skull-and-crossbones next to the symbol. (Now THAT'S a bad sign, when even the Pink Sheets guys are like, "Uhhhhhh ...").

With the turmoil in the regular markets as it is, I have no doubt there are some inexperienced investors out there hoping they can make a big score and thinking some penny stock is the way to do it. Please, trust me on this one -- DO NOT BUY PENNY STOCKS. It is extraordinarily risky because there are no listing requirements and the companies in question don't generally file reports with the SEC. Don't take my word for it, either. Look what the SEC has to say. Simply put, you're asking for a beating playing around with them. Go buy a flat-screen television instead, or some Grey Goose vodka, or one of those truck bed liner things. You'll still be out your money but will have actually received goods and services in exchange.

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* This is not intended as investment advice. This is because I, although very much interested in financial matters, am not a certified finance professional or investment advisor, even though I like to think I could make a bit of money at doing that. Remember, equities are just like those plates you buy from the Franklin Mint, and their value can go up or down. So talk with your investment advisor, or whomever you consult with, prior to making any decision. Or listen to this guy, who is an expert on all things related to the market.

(Also, in the interest of full disclosure, he is my first cousin once removed, although we've never met. But he's been at this longer than I've been alive).

Posted by Benjamin Kepple at August 9, 2007 11:03 PM | TrackBack
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