Tough Sledding

Things are never so bad they can't get worse. The stock market and my portfolio got crushed last week. Hard to believe, as I have had plenty of bad weeks since July, but this was the worst week to date. Sometimes I feel snakebit. I bought JTX and then the very next day they announce earnings with revenues down 15% (Jackson Hewitt profit falls 34% on slow start to tax season). The stock proceeded to drop 39% in the week. I guess the good news is that I have virtually a year to recover.

It is hard not to feel snakebit, same thing happened with ODP. But realistically, we all should realize that stocks don't go down because we buy them. I have just had a bad run.

Of the 20 stocks that I have bought (and still own) since September, only 2 are in the black (PACR & SIMG). AXCA also went up nicely, but I sold when they were taken over.

I do think I understand what is happening to some extent. There has been so much turmoil in the credit markets that highly leveraged hedge funds are desperate for cash to meet their margin calls (Carlyle Fund Misses Margin Calls ) of hundreds of millions or even billions of dollars. They can't sell their bonds as those markets are literally frozen. So they have to sell stocks. And what stocks do they sell first? Ones that had so-so earnings. Smaller stocks. My stocks. At some point, the de-leveraging will end. Everyone should read a great book called "When Genius Failed" about the meltdown of Long Term Capital Management more than a decade ago. We are seeing that all over again, except there are multiple LTCMs around and no one to bail them out. People with liquidity right now have their absolute pick of the deals from these desperate sellers. While it has been painful for me, part of me would like to see the hedge funds get their just desserts as I have always been astonished that people would share 20% of their profits AND pay 2% of invested assets to these people that Warren Buffett lampooned.

There is a TON of cash sitting on the sidelines, just waiting to pounce. When that cash thinks the market has been totally oversold, they will jump in and reap the benefits. The key is to be patient. As George Harrison sang, "All Things Will Pass".