Heard in the Village: October 2009

“The major job of a hedge fund is to prevent major losses NOT to get big profits.” was a comment made by the founder of the Tiger Hedge fund, Julian Robertson. That didn’t surprise most villagers.

“Nothing is as important as protecting on the downside,” said Jerry Goss, a successful broker for over 29 years in an October 5, 2009 Business Week article. He also said, “The market we have today is vastly different from anything I’ve seen in my career.”

“Everybody wants to find something in the past that looked like this. I don’t see anything. I can only monitor the present.” said Ronald H. Muhlenkamp in the same Business Week article.

“Buy-and-hold became a religion… but when stocks become fairly valued, you sell them,” said Vitaliy N. Katsenelson, a portfolio manager and author of Active Value Investing, in September 21, 2009 BARRON’S article. He uses a buy and sell (called active-value style) approach that the villagers have used for years. He said we’re in a range bound market where the bulk of returns come from dividend paying stocks.

The reason for being range bound for next few years came from David Rosenberg, formerly with Merrill Lynch. He said after 25 years of a credit expansion, we’re in a long deleveraging process that is inescapable. It’s part of 18 year cycle of bull and bear markets. He thinks bear market rallies, like the current one, should be “rented” (traded) and not “owned” like in bull markets. His advice for this post-bubble credit-collapse environment is that it is critical to preserve capital and income. Economies don’t grow when credit is contracting. He’s not a V shaped recovery believer.

He would be more interested in stocks if the S&P 500 was at 840 or 850. The villagers were happy to see there were others who agreed with them. They knew the market was getting quite euphoric and needed some print reality somewhere. They knew the economy can recover for awhile before a financial or geopolitical event could stop it again. Consumer, voter and investor confidence remains uncertain and nervous and they short circuit any uptrend. The villagers continue to trade and accumulate dividend paying stocks.

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