Why I’m Done with the Stock Market for Good

Oh so close! I was holding a stock, waiting for a positive earnings release, with the full intent of exiting stock ownership for good once I saw a nice bump to reward me for my time and risk. Instead, I watched a combination of a bear market, overly optimistic analysts and a heavy short position drop my stock 50% in 2 days.

This was so typical of my experiences on the market: years of careful effort and minor gains, more than erased in seconds on the stock market.

Now before you start to think this is purely emotion, remember that I was already planning on exiting before my recent calamity, and here are some reasons why:

1) Given Enough Time, the Market Used to be a ‘Sure Thing’… NOT Anymore!

When I entered investing ca. 1998, this is what the trend on the Dow Jones Industrial average looked back to approximately the time of my birth:

Plot of the DJ Industrial Average from 1972-1998

Sure thing right? Little burp back in ’87, but if you look at any 10 year period you are still in the money.

Now look at plot of the market over my ~12 year trading career:

Plot of DJIA from 1998 to Present

Hmmm… not such a sure thing. Lets assume I made all my purchases back at 8000, and not at 11,000 and 14,000 like I actually did, and I actually had an index fund (and not a bunch of crappy tech stocks). My potential gain was about 10,000-8,000 = 2,000 or about 20%.

Guaranteed funds provide a compounded annual growth rate (CAGR), but relatively low rates (low single digit), so it is worthwhile understanding what kind of CAGR this gain translates into. To get a 20% gain over ~12 years, you would only need a CAGR of 1.88%. You can EASILY have found a GUARANTEED fund that would have returned more than this! Keep in mind I am already using a best-case scenario, not including this notable stock that I did invest in:

NT Stock Plot fot the Last 10 Years

2) So if you were a lot smarter than me, and stuck with index funds, you at least saw some gains right?

Again, not so fast!

The Dow Jones is based on the US dollar value of stocks. What has happened to the value of the US dollar since 1998? At the start of 1998 $1 US would purchase about $1.44 Canadian.  Today, they are trading close to parity, meaning that the USD has actually depreciated about 40%.

Lets see what happened to the $8000 USD we invested in the DJIA index fund: we used about $11,500 Canadian to purchase that $8000 USD, rode it up to $10,000 USD which is now worth $10,000 CDN! We have actually lost $1,500! That isn’t even counting the opportunity cost of that money.

3) Give it your full attention, or not at all.

I only worked one or two stocks where I could play close attention to the nuances of the particular business, and the market that they were in (think Apple). I found that even with this detailed focus, I still couldn’t keep track of all the important metrics that could have a significant impact on the stock (like exchange rate trends, short position, the macro market trend).  I could never put in a sufficient amount of money in to create the gains that would justify my time. For example, even though I kept buying AAPL from $120, all the way down to $80, and all the way back up to sale at $185, I still didn’t make any money due to interest charges, trading charges, and exchange rate fluctuation! I was so surprised come tax time that I had to perform the calculations 5 times to convince myself the net was $0!

4) Analysts are a flaming pile of crap.

I think only meteorologists are paid for being so consistently wrong, and compared to stock analysts, they are oracles.

That is why I was planning on getting out of the market for good, and focussing on low risk money market funds, guaranteed funds, or bricks of cash under the mattress. Now I have to wait and see if the stock can dig itself back out of its hole.


Apple Earnings Today at 5PM, I’m Holding…

I am in for the long term, so I am holding. I expect them to beat estimates today, and there is the potential for Steve Jobs to show up on the call too. Apple continues to be a good news story, and one of the few really well run companies.

AAPL: And Back In Again…

Keeping with my ‘buy high and sell low’ strategy, I am getting back into AAPL.

Seriously, the market pull-back and AAPL profit taking was much less than I expected. It appears people were happy enough with what they saw at the WWDC, and the absense of Steve Jobs’s didn’t get much notice.

As a result, I am making a timid foray back into AAPL at $137, and looking to accumulate more if it drops.

Out of AAPL, at Least for a Few Days

Apple LogoI have enjoyed the rapid run up in AAPL lately, and today I am getting my whole stake out at $133 ish.  The  main reason is that I am starting to feel greedy (a sure sign you should sell), and my spidey senses are telling me the market is getting ready for a big drop when the GM-crud hits the fan.

Also, Morgan Stanley upgraded AAPL his morning with their target price going from $105 (duh) to $180… when the analysts start pointing out what is obvious (to me) it gets me worried.

Reducing My Apple Stake by 2/3

Apple LogoThis really has nothing to do with any negative news I expect out of Apple, rather, based on just how garbage the market has been, I am starting to lose faith that Apple can remain buoyant surrounded by such an awful market.

I managed to get out early today at $90.00 (a market order, so such an even number was a surprise), before the stock and the rest of the market took a big dive.

The major factor which is getting me out is the strength of the US dollar. It is getting close to a 1.30 exchange rate, with my average exchange for the purchase of the shares in the 1.13 range. This means my gains in the exchange rate are pretty much making up for any losses in the stock. I am reducing my stake with the expectation that more buying opportunities await near the bottom of this market which I don’t think we have hit yet. Also, as the market does improve, the exhange rate should become more favourable for buying USD instead of selling them like I plan to.

Its a testament to the strength of Apple’s business that I have managed to pretty much break even on their shares in such a horrible market.

AAPL: Sold the Shares I Picked Up Yesterday

Apple LogoSince I really didn’t want to have to pay for them, I wanted to sell and take the gains from my shares I purchased yesterday, and left the rest in to take advantage of gains that will hopefully come over the next few weeks.

Based on pre-market trading, I was hoping for more of a pop in the stock, but I always find that pre-market numbers don’t give you much idea of what is going to happen at market open.  I will take the 9% gain for one day, and return to a more long-term view on this stock.

My biggest struggle when considering if to sell or not is really more to do with the CDN-USD exhange rate.  Since I have been buying AAPL stock, the $USD has ramped from close to parity to a +26% rate.  This gain in the USD would make transferring the USD held in Apple stock back to Canadian dollars attractive.

Generally, based on how soundily AAPL trounced their estimates, I was hoping for more.  RIM is climbing like crazy, but the only explanation I can see is that Obama has one.  This just doesn’t make any sense.

Increasing My Stake in AAPL, Just Prior to Earnings…

Apple LogoI am (almost) doubling my number of shares by picking up a bunch today at $80.  Yesterday, the stock traded at its lowest value in 52 weeks.

Earnings are announced at the close of the markets today, and the analysts are very split on what the news will be.  The stock has been seriously depressed by the recent news about Job’s health issues, and the continued negative sentiment on the world economy.  I think this is a buying opportunity ahead of what I think will be strong results beating the estimates.

If they don’t or the stocks tanks for other reasons, I will be making a quick run for the toilet.  Based on selling RIM shares to buy AAPL stock at $90, and watching RIM run up 32% since, I really need some good news (NT news didn’t exactly help either).

I keep telling myself “you have to stick with your plan, you have to stick with your plan…”

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