Diary of a Hedgehog: Biggs' Final Words on the Markets

Stick to Your Guns

There was a sharp fall in the S&P 500 in mid-November. I was breakeven for the month. In reality there are times to stick to your guns and there are times to cut and run. However you can burn up a lot of performance dancing around trying to avoid wiggles. For once, I was right.

I was tempted to call this piece “Shaking Out the Sissies,” but to paraphrase the Bible, arrogant one-liners are dangerous; pride goeth before a fall and a haughty spirit before destruction.

November 15, 2010

Equity markets declined last week, with a steep fall on Friday that has rattled the players. Is this the end of the rally that began in early September? I don’t think so, but the pullback could last another few weeks and reactivate the sweat glands. After all, the S&P 500 had briskly risen 17% since late August, and a correction of half that gain is conceivable. I don’t believe it’s worthwhile to try to time short-term moves of this magnitude because you have to be right twice on the timing (e.g., on both the sell and the buy decision). Tough stuff!

Admittedly there is disconcerting news out there, of which the still-shaky nature of last week’s high frequency economic reports is the most important. In the end, the path of the U.S. and global economies is going to determine the ultimate direction of stock prices, and I’m still of the view that we’ve turned the corner. Time will tell. ...