No Free Lunch in a Bear Market

It’s been a tough environment for equity speculators in recent history and the only ones making any decent money are those that are good at index trading. The stock market’s actually been rallying fairly well over the last couple of weeks, but I just don’t see this as a turning point. I’d be really surprised if it wasn’t a dead cat vbounce.

Earlier this year, when I talked to neighbors or friends, everyone wanted to talk about stocks and which stocks I liked the best. Now there’s no talk at all about investments — none. In fact, most people that used to want to talk about their investments would rather not. It’s just too painful.

So, this means that it’s a great time to be considering new investments — when nobody’s interested. But, it also means that the time horizon for a stock market investment is very unsure. This is why so many stocks have done so poorly in recent months — nobody’s buying because nobody wants the risk. You might have found the greatest business in the world, but the stock isn’t likely to go up because the market isn’t interested.

I’ve been fortunate to have had a couple of solid winners over the last few weeks. Two stocks I wrote about in this column in late November are doing great. One’s up 35% and the other’s up 38%. Both these companies are U.S.-listed Chinese stocks and they’ve gotten some tailwind from the market’s recent rally. Really, I’m surprised by how well they’ve done, all things considered.

I think you have to be really careful as an individual investor these days. Stock market sentiment can change so quickly and there’s an enormous amount of money sitting on sidelines. If you’re not in the market at the right time, you’re going to miss the big moves. Sentiment-based trading action in stocks is volatile and very swift. Really, to catch these moves, which are rare nowadays, it’s a full- time job.

There are a lot of traders out there right now ready to pounce on a good stock if market sentiment is right. This also means that there are a lot of traders out there ready to sell on a moment’s notice.

In a bear market, there are definitely no free lunches. The equity speculation business is much more difficult than it was this time last year and it’s going to stay this way for quite a long time.