When To Buy Stocks

Tyler Durden's picture

Submitted by Bill Bonner of Bonner & Partners (annotated by Acting-Man.com's Pater Tenebrarum),

A Grotesque World

Stocks have soared this week - no pre-Christmas panic this year. Tomorrow, we will reach into the archives for a visit with Christmas Past. Today, however, we give you a little Christmas Present.

We have been trying to understand the Fed’s position… and its new “tightening” cycle. The Fed is trapped, we concluded. When adverse conditions appear – a bear market or a recession – it won’t be able to stay the course.



Successful investment principles explained by German scalawag analyst

Since adverse conditions are guaranteed, sooner or later, the Fed can never return to “normal.” It has created a grotesque financial world. Now, it will have to live with it… and be destroyed by its own monster. How?



DJIA – up, down, up…(market internals still stink) – click to enlarge.


Faced with a new crisis, it will bring out new “tools,” new tricks, new experiments. These will be merely variations on the fundamental magic – creating money out of thin air. Exactly how, when, and to what effect will this develop?

We wish we knew! But it is bound to be exciting. Another depression? Dow 50,000? A pack of gum for $25? Anything is possible.

Put on your seat belts. Sock away some Krugerrands. Offer your neighbors some Christmas cookies and eggnog. What else can you do?!


Diehards and Lost Causes

But here’s another Christmas present. It’s nothing new. And we didn’t spend a lot of money on it. But it’s the thought that counts. Here goes…

When you go to buy a stock, you might ask yourself: Is this stock likely to go up? But that’s the wrong question. You don’t know whether it will go up or not. No point pretending. The right question: Has this stock gone down enough?

Now, we’re getting somewhere. Now, we’re harnessing our natural, very becoming modesty and putting our ignorance to work for us. We don’t know the future. But we can know the past. And it is not for nothing that we are a friend to underdogs, diehards, and lost causes. It pays!

Thirty years ago, at an investment conference, there was a scalawag analyst from Germany. He showed a chart where a stock had gone up steadily for 10 years. He pointed to the bottom, left side, and in a thick accent explained his system:

“Ja, you see, down heer? Vee buy.”

Then, pointing the upper right hand corner opposite…

“Und up heer, vee sell. Zat vay vee never lose money.”

A hand went up. A listener had a question:

“But what happens if the stock doesn’t go up?”


“Ah, zen,” he replied without a moment’s hesitation, “vee don’t buy it.”

He was right. The winning formula is “Buy low. Sell high.” And there’s only one side of that formula you can completely control: buying low. The way to make money from investments, above all else, is to buy the losers, not the winners.

Everybody stumbles. So the longer you see some hotshot walk down the street without stumbling, the greater your certainty that there’s a banana peel waiting for him.

What you want are stocks that have already stumbled. Not ones that have some kind of serious motor problem… not cripples… not brain damaged… not derelict companies or defunct technology stocks.

Of course, you want normal companies in decent health… but which have had a string of bad luck, or made some bad “life choices” and are now getting themselves back together. You want something that is cheap.


Dust on Its Jeans

Near the beginning of last year, we looked around for a stock market with dust on its jeans. Almost everything was absurdly smug, upright, and expensive, in our opinion. But we found one exception: Russian stocks.

“…cheap on all measures,” we wrote last March, “…the most value you can get.”



US listed Russia ETF RSX – its moves in 2015 were mainly determined by the gyrations in the ruble – click to enlarge.


We suggested a trade: Sell U.S. stocks. Buy Russian stocks. So, how would you have made out if you’d bought Russian stocks? We put the question to Bonner & Partners researcher Chad Champion.

Bill: “So Chad, Russia has done reasonably well. If someone had taken my suggestion and bought a Russian stock market ETF, how much would they have made?”

Chad: “Uh… Bill… I hate to tell you this, but they would be down 14%. That’s about 10% more than the S&P 500.”

Bill: “Well, never mind.”

Of course, you gotta give it time!


Large Gains

Generally, buying cheap is the way to go. And “quant” investor Mebane Faber, of Cambria Investment Management, proved it.

Faber did a study over, roughly, the last 100 years. He wanted to know what happened when the stock market fell on its face. Specifically, after stocks had gone down for three consecutive years… what next?

A year or two is usually all it takes to correct mispricing. So, a three-year slide is rare. But when it happens, there is almost always a powerful bull market afterward, with average gain in the fourth year of 30%.

Faber further studied industry groups, sectors, and overseas stock markets. Everywhere, he found the same phenomenon: When a market had gone down enough, it was ready for a big move to the upside.

When U.S. industry sectors, for example, had dropped 80% or more, the average return over the next three years was 170%. Foreign stock markets: Same thing. If they went down 80% or more, they’d have an average gain of 118% three years later.

So, what is down 80%? What’s despised? Where are the losers? Gold? Commodities? Emerging markets? Here’s one that stands out: Greece. Talk about a loser!

Greek stocks are down 98% since 2007 in U.S. dollar terms. That is a record of investment failure and extreme loss that is hard to beat. What are the odds that Greek stocks will be substantially higher three years from now?



Greece’s Athens General Index – in euro terms it is down slightly less than 90%, but the euro has lost a good chunk of its value as well since 2007 – click to enlarge.


We don’t know. Wrong question. All we know is that you get a lot of stock for your money. That’s all we really know. And all we need to know. What else? Russia!

The dividend yield on the Russian stock market is about 4% to 5%. And the average Russian stock is selling at about half its liquidation value, with the market down from 2008 even in ruble terms.

Russian stocks may not rise in 2016. Or 2017. But they’re bound to go up sometime. And if they don’t – don’t buy them.

Merry Christmas… or happy holidays – as you prefer.

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NoDebt's picture

I always ask: "Is there is a ready supply of greater fools to dump it on when it's time to punch out?"  As long as the answer is yes, it will go up.


Looney's picture

Can’t Obama just sign an executive order and give people FREE ObamaStocks? ;-)


hxc's picture

Yup. FANG etf for simpleton fucks


knukles's picture

Exactly.  The question is not whether NewCo is a good company.  The question is is NewCo's stock under priced.  2 hurdles have to be cleared
Then in today's environment, of rampant algos and floating upon a sea of Fed liquidity, is the market properly priced.

It is much more than the practical application of Graham & Dodd fundamental security analysis (etc) which worked exceedingly well in "normal" times past when applied buy insightful, smart individuals, the Ray Dalios of times past.


Generally, buying stocks means you have an investment head like a sun fucked onion.

Generally speaking, if you can't stack it, live on it title free, shoot it, or eat it and shit it out, it ain't worth a pinch of coon shit on toast.


Arnold's picture

i beg to differ.

In a world I used to understand, Stock with dividends was a good investment.

A retirement stream of confidence.


Now I gotta have Castlight Health to eat Alpo with cloves and glaze for Christmas.



Hah - gotchya. Even you had to put market returns into the Ghost Of Christmas Past category.

Exactly what I'm talking about, real time - stawks are for lunatics.

Lucky man, Alpo for dinner - all I can do is dry kibble.

And, I gotta jerk off the dog to feed the cat.

Dogburgers when he pegs out, Catatouie when the cat goes.


Stawks are like boats.

A hole in the water surrounded with fiberglass that you pour money into.

Money_for_Nothing's picture

FREE ObamaStocks cost too much. It's the margin calls that will kill you.

R.R.Raskolnikov's picture

Turn that chart of FB stocks upside-down and you will see that it went down enough... buy the dip... Furthemore, I asked Santa for Russian stock(sky). Let's hope I lays there under the tree.

katchum's picture

The google stock screener works wonders.

Kirk2NCC1701's picture

"Oh vey. You people are so naive and so 'linear'". 

Just ask a successful  Tribesman when the best time is,  not these other schmucks, schlemiels and schlemazels, who get schlonged regularly.

"You buy when you have an inside track, when you can force a Ch.7 or Ch.11."

That's pretty much what one rich tribesman once told me, regarding "the Best time to buy or sell".

SweetDougisaTwat's picture

Notice that Bonner did not offer any meaningful way in which to determine "ven vee buy" and "ven vee sell".  Without that knowledge you don't know when an equity has "tumbled" enough or risen enough.  You don't know.  You are just guessing.  Some will confidently call that the Art of trading, but I know him from school and he doesn't like it at all when people use his name in vain.

SweetDougisaTwat's picture

Bonner once told me that there are only two rules to success in trading:

#1  Never tell anyone everything you know, and

kaboomnomic's picture

Hey... NOW is the best time to make STAWKS!!

We're talkin' about CHICKEN STAWKS, rite dudes??

Arnold's picture



Geese Louise ,

we used to do the Chickens in the back yard and had enough for the neighborhood for weeks

Arnold's picture

And Kabluie, you are still a topic of discussion.

robertocarlos's picture

That picture is awesome. I think it's the professor from a kids show in Canada.

Edit: I'm wrong. The Canadian professor was more awesome.

ZangotheMagnificent1's picture

ZANGO the ALL SEEING sez, "risks buying a falling knife ... momo is safe for quick trades."

Who was that masked man's picture

Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it
– Will Rogers (1879 – 1935)

Catullus's picture

Knife catchers ask "has it gone down enough?"

There's still only one reason to buy, you think it'll go up. That's it.

Golden Phoenix's picture

Gold stocks like NEM at 15 year cycle lows. The SPX at 15 year cycle highs. Draw your own conclusions.

YouThePeople's picture

After everyone else has sold? Just a wild guess.