"Buy the Rumour, Sell the Fact"

The world of investors is occupied by many kinds of people. We sort of accept that not all of them are infallible, super intelligent, visionary, -  full of integrity and purpose. That is why some of our investment guru's, probably fed up with their students' notorious retention levels (= 3%, statistically proven!) of even the most carefully structured and passionately delivered lecture, decided to get their own back by createing catch phrases, simplistic axioms, mystic syllables. Here a few samples:

"Sell when others are greedy, buy when others are fearful" (Warren Buffet);

"Sell in May and stay away until St. Leger's Day." (old English phrase describing the habits of London's City boys who leave stock markets in favour of horse racing season, the last race being on St. Leger's day in the autumn.)

"Buy the Rumour, Sell the Fact", don't know who said it first, but am sure it was a highly enlightened but vindictive teacher.

"Buy the Rumour, Sell the Fact" sounds like a quote for all occasions. That's scary.  You, the investor, decide what is rumour (everything is until it hits you in the face) and what is fact.  Then again, when is a fact a fact?  US unemployment figures state one thing today, only to be revised the following month.  Company profits of today can be revised tomorrow. Facts are transitory points in a moving economy that never stays the same. Yet, knowing full well what this statement wants to teach, the media still propagate the notion of markets being moved 'on news', with news being anything between rumour and fact. The quote has been suitably amended, too:

"Buy the Rumour, Sell the News." And so we end up with decisions, made in virtual space with statements like "Markets did not move because of lack of news..." ; "Markets move because of what Mr Bernanke said..."  We don't even bother to check the facts anymore? Some weird short-fuse decision making process that is.

So how?

"Risk comes from not knowing what you're doing." (Warren Buffet, again)

 That I can endorse.  But does that mean "the Market Risk", intrinsic to financial markets, is an acknowledgement that we can never know all the facts? Or that we don't know what to make of them? ... don't have the right perspectives? I guess all of the above...  

So why the detour into quotes?

BACK TO THE MARKETS, ... REALITY, .. FACTS

YTD chart of S&P500 "in good times and bad"

Frustrations mount in a market that blows hot and cold on a daily basis as the chart shows.  That's what probably prompted me to write about these silly clever quotes. 

With my investors I have been upfront about the tug of war between bulls and bears. I do not attribute the toing and froing of markets to events in Europe.  By right, they should just fall! And fall much more drastically.   But with so much cash out of the market the slightest whiff of a bargain and a quick buck will bring investors back into the market short term. In this environment, real valuations and hard facts simply do not impress investors . Waiting impatiently for the proverbial light at the end of the economic crisis tunnel, they  fear  they'll miss the start to the next rally,.

A few signals of divergence are popping up hinting at a low near term (as per the above sample, the S&P 500): While stocks have been falling to lower lows in May, the RSI and Momentum indicators have been turning up, see RED and GREEN ARROWS. The signal is still mediocre in strength, let alone expanding, so don't take this as gospel. It could be as misleading as a 2% upward move in a day like we have seen this week. The frustrations for June have yet to surface and will be as unwelcome as May's. 

Gold to Shine?

1-year GOLD in SGD, ready for turn up?

Since the summer last year, we cautioned on gold. We were right, but frequently challenged along the way. The path from S$2300 to S$1950 was a wild ride, often retracing the entire move after every turn.  Without the inclination to trade in such short intervals and with the limited range of tools mutual funds can offer, we consider ourselves lucky with the few % gains we made during the time. 

Now, the picture is starting to look rather interesting. Having retraced the entire breakout move between July and September 2011, gold prices found support at exactly that level and bounced off reasonably strong.  It could prove to be a turning point, the turning point in 2012. But - I want to wait to see the reaction of gold prices during the rough markets we expect for June before giving you more concrete ideas of how and when to start investing again.  PLEASE NOTE, THIS GOLD CHART IS IN SGD = SINGAPORE DOLLARS, not USD.


Prologue
This is not a month to try out new magic wands. The winds stirred up by Greece and the European debacle could quickly turn into hurricanes.  Of course, as and when the winds die down, things will turn around rather swiftly.  Still, no need to rush in, I'd say.  Stay cool.