The Market Is The Noise – Ignore It

By John Del Vecchio  |  November 2, 2018


That’s how I’d describe markets over the past month – a lot of sounds, as many furies, and, still, not much signaled…

In other, real words, things have gone even more pre-verbal…

I’ve often noted that these times have been tough on value investors and fundamentals-based stock-pickers. The concept of “good value” has, by the “new” market facts, been punished.

But, in recent weeks, things have been indescribably crazy… all over.

How Bad Is It?

Well, October had the most “down days” for equities in any single month since 2008.

Sixteen days. One more would have made it the worst month of my lifetime by this measure. The last time we saw such consistent selling across a single month was April of 1970.

Things have come apart because the thing holding it all together did like all things that go way, way up way, way too fast do: They come down… way, way fast…

You might say this October’s surprise came with particularly sharp FAANGs…

That’s Facebook (Nasdaq: FB), (Nasdaq: AMZN), Apple (Nasdaq: AAPL), Netflix (Nasdaq: NFLX), and Google/Alphabet (Nasdaq: GOOGL).

Most of the entire market’s recent gains were about these names.

But even these new stalwarts filled investors with fright last month.

Amazon could do no wrong for years. AMZN was down as much as 2% at its lows.

GOOGL’s earnings disappointed, and management couldn’t convince investors otherwise during its conference call. That turned into a swift 16% reduction in its market value.

Netflix reported huge subscriber growth, and NFLX popped on the news. But the stock gave up those gains and then some, the price down 29% from its peak at one point.

There’s enough blood, gore, guts, and drama to fill a new binge-worthy, “prestige” something-or-other for the streaming superstar…

Regular readers know the market’s had me nervous for a while.

I’ve Focused on Two Things

No. 1, for me, always, is “good value.” Right now – still – the stock market is rich, at nosebleed levels by some yardsticks.

And, No. 2, it has to be a unique opportunity.

Sticking with (getting stuck by?…) FAANG has been easy. And that “idea” is, literally, everywhere.

It doesn’t help to diversify your portfolio.

And, remember, in the dot-com crash Amazon fell nearly 95%.

That probably won’t happen the next time around. But you never know. (Nobody knows anything…)

“Good value” means reduced risk. And that might be “the most important thing” today.

Of course, management has to execute… and execute… and execute… to justify higher prices.

And not every stock will be a winner. Not every CEO is super.

Market action, into early October, covered up a lot. And that made it hard to separate real winners.

That’s Changing

On top of all the buzzy “disruption” represented in most minds by stuff like FAANG, we now have an upset market.

And I am one very excited forensic accountant…

Indeed, I was really happy to talk about it all at the Irrational Economic Summit last week.

(Obviously, I’m biased; but this year’s was one of the most fascinating collections of talent I’ve experienced at one of these things. And – take it from me, I’m a forensic accountant! — it was fun…)

There’s actually a particular name I had in mind – and shared at IES – for this “good value”/”unique opportunity” dynamic. That’s BlackBerry (Nasdaq: BB), which has certainly already seen its share of the “best” as well as the “worst”

But I’m going to dig in a little more in the November issue of Hidden Profits and make a case for its long-term prospects.

The important thing to know is that there’s a lot of noise out there right now. Paying attention to stuff like “revenue,” “earnings,” and “cash flow” – and also knowing how to identify what’s real and what’s “fake” – are key.

I’m just a forensic accountant; but that’s what I do.

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John Del Vecchio

Author of Rule of 72: How to Compound Your Money and Uncover Hidden Stock Profits and What’s Behind The Numbers: A Guide To Exposing Financial Chicanery And Avoiding Huge Losses In Your Portfolio, John is a forensic accountant at heart. Standing on the shoulders of the great David Tice, James O’Shaughnessy and Dr.MORE FROM AUTHOR