Several times in the past week I've heard various pundits say "300 is the new 30". This is a reference to the Dow Jones Industrial Average and the level of volatility we have been experiencing. We have seen such dramatic movements in the market on a regular basis that a mere 300 point day up or down now seems commonplace.
Since we keep hearing this, we decided to take a look at just how much volatility there really has been. Since September 1st, there have been 34 trading days. On 28 of those days, we had intraday swings from low to high in excess of 300 points on the Dow. 17 of those were in excess of 400 points, and on 10 days we skipped right over 500 points and had intraday swings of over 600 points. We've had 8 over 700, 4 over 800, 2 over 900, and 1 topped 1,000!
What's more, the volatility has been more pronounced in the past two weeks. In the past two weeks (ten trading days) every single day had intraday swings in excess of 300 points. Seven of those days were in excess of 700 points. Monday of this week was the highest one day point move ever on the Dow, at over 900 points from open to close. Volatility has been unbelievable.
We believe that the economy is going to be rather difficult for the coming year or so. The stock market is usually a pretty good leading indicator of the economy, foreshadowing what's to come by 9 to 18 months. The current dramatic slides in the stock market suggest that the economy will continue to contract, and the contraction could be worse than many expect. However, there are signs that the market is bottoming out. "300 is the new 30" is one of those signs. When everyone begins to get used to bad being normal, it is often time for a turnaround. By contrast, everyone expecting good results from the stock market is usually a sign that a decline is imminent.
In an op-ed piece in today's New York Times, Warren Buffet stated that if things keep going the way they are, his personal portfolio (outside of Berkshire Hathaway) will soon be 100% equities. Until recently, it was 100% US Treasury Bonds. To quote the "Oracle of Omaha" in his NYT op-ed: "bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price." We agree. We are looking to purchase equities in the coming days and weeks. We are not yet ready to over-allocate to them, and our purchases will be made cautiously, but opportunities are becoming more apparent, and we will be taking advantage of them in the near future. Note, however, the emphasis on the word "cautiously". We do not believe that the market as a whole will be stable for quite some time, but prudent stock picking will result in a portfolio of good companies that should be positioned to ride out a rough economic period, and participate well in the eventual recovery.
