7/14/16

Chicken Little Buys US stocks

The Dow Jones Industrial Average hit new all-time highs this week. Chicken Little bought stocks to cover a small short position in US stocks. This note has three parts. 

1. Why buy stocks at Dow 18,352 after selling at a lower level?
2. Chicken Little's updated investment advice.
3. The Chicken Little road ahead.

Chicken Little is Powerless against Central Bank Money Printing

1. Why buy stocks at Dow 18,352 after selling at a lower level?

The goal of investing is to buy low and sell high. Chicken Little just bought stocks when the Dow Jones Industrial Average hit a new all-time high of 18,352. Why buy at an all-time high? 

The answer is that markets exhibit momentum. This means new highs are usually followed by more new highs. Chicken Little always invests on the side of momentum.  See earlier post.

With hindsight, of course, we would love to have purchased stocks lower. For example, the Dow was 1,000 points lower just after the Brexit vote. Without a time machine, however, Chicken Little cannot go back in time.

Chicken Little bows to the power of the bull market

2. Chicken Little's updated investment advice.


Chicken Little has repeatedly advised like-minded investors to sell a small amount of their stock portfolio. Specifically, I suggested that investors consider selling 10% of their stock holdings -- sell advice 1, sell advice 2

Investors who followed my advice are poorer than they would be if they had not sold stocks. What should such investors do now? There are two choices.

a. Buy back the stock that was sold. This is what I suggested at the time of the sell posts, "What would an investor do next? Buy back the sold stock if the market makes a new high." Please note that I followed this advice myself.

b. An alternative, however, is to sit tight. If you sold the 10% of your holdings as I advised, and you like the lower risk position created by selling, you could just sit tight. I continue to believe that most people are taking more investment risk then they will feel good about in the future. 


Decreasing risk could be a good decision

3. The Chicken Little road ahead.

What is next for Chicken Little and US stocks? Chicken Little is ready to become bullish is the right criteria are met. However, Chicken Little is also ready to become bearish if the market fails to hold recent advances. Specifically. 

Chicken Little will buy more if: Chicken Little criteria for bullishness are met. 

Chicken Little will sell US stocks if the Dow Jones Industrial Average goes below 15,370



Chicken Little's next move depends on the markets



Chicken Terry appreciates your interest


2 comments :

  1. Dr. Burnham
    Thank you for your past posts and articles.
    They have accurately reflected that savers are being injured by current monetary policy.
    You have further gone so far as to convey that you have withdrawn monies you have held in financial institutions, even those insured by the FDIC, given the actual insolvency of such entities in the event of financial collapse. You have also indicated in past replies that capital controls are a blunt instrument readily available in the event of such collapse.
    Many, if not all, of your posts concern themselves with "investing" as a means of preservation of capital as well as increased profit opportunities, however I believe that a good number of your writings miss a major point of interest of readership, which is:
    I am a saver. I have saved, over the years, a substantial sum. Such amount, at formerly regulated passbook rates, would have yielded annual multiples of the income of the average american wage earner. I am now being rewarded for such efforts by being unable to compete with inflation irrespective of the size of my nest egg. In addition you have now also suggested it likely that capital controls are a real possibility in the event of monetary policy failure. The inquiry that I have , and that I fail to see any real response from you, is if one is not interested in "profit" and only interested in not "losing" such nest egg, in this world of fiat currency what does one do. Thanks you in advance for your response.

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  2. Hi Brent,

    thank you for your comment. If I understand your question, it is where does an investor hide if they do not care about current income.

    I think the obvious answer is gold. Gold will survive as a store of value regardless of how much money the Central Banks print.

    If you look at my own investment positions, however, you will see zero pennies invested in gold: http://goo.gl/enn9o5

    Why no gold? Because I think that gold prices can still go down a lot. To be concrete, I think it is likely that gold will go below $1,000 before it goes above $2,000. I think it could go a lot lower.

    For me, I am in cash and Treasuries now. I can foresee a time when I move to gold (and I intend to keep reporting my positions).

    For others, possibly including you, gold could be a good choice now. I could be wrong about gold prices. Even if I am right, you may be able to hold through a decline.

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