Tuesday, December 2, 2008

Bottom feeding is for catfish

MarketWatch's front page headline was "Bottom Fishing is...", one of those cases where you know what you want to say but the words don't cooperate. I know the feeling. From MarketWatch's Special Report "Trading Strategies-Dark December"*:

Commentary: Markets have tossed out all the rules

Every investor wants to say that he or she "bought the bottom" but anyone attempting that feat this year was in for a rude awakening. Bottom picking is a dangerous game and while we have all sorts of indicators to help us get close to that goal they all depend on an orderly market.
The market is anything but orderly these days.
When that happens we cannot simply follow the rules of "normal" markets. Most investors with time horizons measured in weeks and months would be better served waiting for the market to return to some form of "normal" before testing the waters and feeding on the fallen.
Before getting into the details, I must first say that I am looking for a short-term rally to follow through on what we saw in the days leading up to the Thanksgiving break. If you are a short-term trader, fell free to play. If you are a long-term investor with multi-year rime frames, I agree with uber-investor Warren Buffett that there are excellent values to be had.
But if you fall in between these extremes then please consider this.
All of our analysis tools, and I am talking about technical, quantitative and fundamental, are based on certain assumptions of the world and many of those assumptions are not true these days....MORE

This is, of course, the problem with models. They work until they don't and if you haven't been scrupulous about noting the biases of the model maker as you build them, you can't react fast enough to avoid serious errors. Always, always remember Korzybski's dictum:

"The map is not the territory"...

*Trading Strategies-Dark December:

After a stomach churning November, most investors would be happy to just get out of 2008. But our experts offer 10 tactics to profit by before putting this year away for good.

Four stocks for December
Bernard F. McGinn looks at four stocks likely to cope well in December and beyond.

Bottom fishing is for catfish
Michael Kahn argues against the temptation to bottom fish while the markets remain so out of whack. Bernard F. McGinn looks at four stocks likely to cope well in December and beyond.

How to play a re-test
Thomas Kee offers a way to play a re-test of Dow 7,400 using three ETFs.

Don't bet on small-cap bounce this year
Mark Hulbert looks at why small-caps likely won't be bringing joy to investors this year.

Go on offense and defense
Jim Lowell plots a course for investors to get aggressive while still being prudent.

Two thriving names to buy now
Louis Navellier offers two names he argues are thriving now.