Let’s assume that I am wrong about the coming correction. The September surprise never comes and we gingerly trade up until the New Year. All of the high beta stuff continues onward, trading up to 20, 25, even 30x sales. No one gives a shit, total honey badger market, and everyone gets rich– or dies trying (extra 50 cent).
But what if I’m right? How much downside does a stock trading 20x sales have in this market?
Well, I will have you know, CSCO was trading 22-25x sales at the peak of the market in 2000. Do you know where CSCO trades today?
Do you know where it traded in 2001?
Just imagine the downside pin action of that stock price and the people who got caught flat footed. I was one of these people, unfortunate and young, rich and careless: utterly retarded.
In September of 2000, the correction, in earnest, began. The market had gone up from the May lows and everyone was doing 100k in monthly gross commissions–until the party ended. CSCO dropped by 20% that month and went down the sewer drain ever since. I am not suggesting the market will endure that sort of pullback. However, it would be unworldly of you to not acknowledge that the drop in March-May was ‘special’ and not ordinary. It was bid less and no one believed we’d rebound.
Well here we are, living to tell the story, at new highs. I haven’t quite recovered from my losses yet, because I’ve been taking a methodical approach. Even still, I cut my losses from -37% to -13%, which isn’t too bad when considering the dire straights I was in.
Here is the reason for the post.
Back in 2000, had you shorted stocks in September, you made a mint. But there was another way to make a mint, without having to accept the idiot nature of being a short seller and the risks associated with such blackguardly actions.
I have a long list of utes that I am eying and will discuss in The PPT over the next few days. However, the XLU can suffice and did so in September of 2000, netting a 14% return amidst the agony and pain of once proud and brave stock brokers, like myself, then lined up for execution.