Galt Stock

Independent Investment Research for IRA’s and 401K’s

Nov. 21, 2008

I read a great quote from Greg McCoach “Please God let there be one more oil boom, I promise not to piss off all the money this time”.  If this quote captures how you feel, you are not alone.  Hindsight sure is wise.  “If only I would have sold my resource stocks in July.”  You are not the only one with thoughts like this.  In our long-term portfolio, we use a trailing stop.  This means we recommend you sell any time the stock closes 20% lower than its highest closing price.  This protects your principle.  We take our profit (or loss) and move on.  On the short-term trades, we may not do this, we may chose to double down or ride it out.  We have some of these that are underwater; in solid companies that we believe will lead the rebound.  It just does not make it any easier.

I have written before about redemptions from hedge funds, mutual funds and individual investors taking money out of the market.  This creates what Warren Buffet calls “A negative feedback cycle”.  When investors request money back from their hedge or mutual fund, stocks have to be sold, if the manager used leverage then more stocks have to be sold, and as the price goes down because of the selling more stocks have to be sold.  Below are Hedge Fund assets under management as of September 30.  The changes in their assets due to redemptions and losses in the market are impressive.  

·         Vinik Asset Management went from 11.8 billion to 1.8 billion!

·         SAC Capital from $14.4 billion to $7.7 billion!

·         Atticus Capital from $8.1 billion to $510 million!

We need money for the market to go up.  This is the bear we are facing.  As people buy treasuries rather than stocks, money is locked up and out of the pool of investable funds. 

WARNING:    The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here. Do your own research, it’s your money. If you lose it, it’s your responsibility, not ours or your grandmothers! The editor may or may not have a position in any securities discussed. The editor may have held a position in a security earlier, or in the future.

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