Tuesday, April 7, 2009

Alcoa/Kroger/Characterizing a Market as Part of a Long Term Secular Bull or Bear: Impact on Stock and other Asset Allocations/

Alcoa reported after the close today.  The loss was slightly worse than expected at 59 cents from continuing operations.    Revenues fell to 4.1 billion which was close to expectations.  Anyone contemplating buying Alcoa now has to be thinking in terms of years rather than last quarter or even this year.  I have a small position and my time frame is five years.

An analyst from Pali thought the recession and rising unemployment would hurt grocery store sales which caused a 5.34% fall in Kroger stock today.  This fall takes KR down to around 10 times the consensus forecast for the fiscal year ending in January 2010.  Kroger is on my list of possible adds as the grocery store component in my personalized consumer staples ETF.  My maximum position would be 100 shares due to the low dividend yield.  If I decide to buy, I will probably split the trade into two 50 share lots, to manage what I call lost opportunity risk in a secular bear market.  Long Term Stock Risks and Situational Risk/Managing Lost Opportunity Risk in a Long Term Secular Bull and Bear Markets/ Novartis or Sanofi

 In my view, we have been in a secular bear market since 2000 which reminds me of the one between 1965 to 1982.   The secular bull which began in August 1982 started its death phase, as shown by the first movement in the VIX out of a stable pattern below 20, in 1997 and 1998, what I refer to as warnings in the Transition Phase from a bull market to a bear market, a warning sufficient to change one allocation's scheme.  

Some would quibble with classifying that entire prior period between 1965 to 1982 as a bear market.  But that is what I am going to call it because it is relevant to the way I hope to conduct my asset allocation.   In that prior bear market, there was a lot of serious movement up and down,  with the DJIA  starting the period in 1965 at around 969 in October, hitting 1000 in the late 1969 and in 1972 before falling to 607 in 1974,  and then up to a 1000 again by 1976 and then down to 808 by July 1982.  Do you catch my drift?   In other words, a series of moves ending up at about the same place after 17 years with mini bear and bull moves in between, a lot of sideways movement, that may have been profitable for the extremely lucky and nimble short term traders.   I would call a 17 year period, ending up about where it started, a bear market.  This same kind of movement is basically happening again over the past 15 years with the March 2009 low taking us all the back to 1996 index levels, with lots of ups and downs in between 1996 and now.   It does not make any sense maintaining a stock asset allocation which only takes into account my age and other personal characteristics unique to me or my situation, without regard to what is actually happening in the real world, and those events include a characterization of the period in question as either a long term secular bull or bear market which should materially impact my asset allocation by itself.  

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