Update…Jeff Voudrie’s Weekly Stock Market Commentary – Dec. 8, 2014

Update…Jeff Voudrie’s Weekly Stock Market Commentary – Dec. 8, 2014

Update…Jeff Voudrie’s Weekly Stock Market Commentary – Dec. 8, 2014

Yesterday I sent out the weekly stock market commentary and talked about the issue of taking the escalator up and the windows down. I included pictures of the S&P 500 yesterday that illustrated that the volume when the market fell was 3 times greater than when it was going up.

The markets opened down 1% yesterday ON VOLUME THAT WAS SEVEN TIMES GREATER than during the up moves the day before. Here’s the picture:

Weekly Stock Market

There are two things that we can learn from this. First, that volume (liquidity) matters. It’s easy to buy into a stock, but sometimes it is hard to get out. The price that is quoted at any given time can give the impression that you have a gain in the position, but if you go to sell it at a time when others are trying to get out the price you get can be considerably less than what was quoted.

Secondly, there is risk in holding positions when the market is closed. The market closed at 4 pm. When it opened yesterday it opened down 1%. There’s no simple way to protect against that loss UNLESS WE ARE POSITIONED FOR IT AHEAD OF TIME.

Many people think that it is easy to get in and out of the market. What I learned the hard way, though, in 2008 is that the ONLY way to prevent this overnight risk is by reducing market exposure before it happens.

Depending on the news flow, the market can open several percentage points lower than where it closed and there is nothing we can do about it.

jeff voudrie weekly commentaryThat’s why I follow a process that seeks to place a probability on the potential for gain in the overall market compared to the potential loss. Over the last several weeks, the markets have continued to go up, but there has been much greater risk of loss than there is potential gain.

As such, my equity exposure has been nearly zero and I have been invested in US Treasury bonds and cash. Those positions are continuing to bear fruit. We aren’t going to get rich off their gains, but the value of the accounts should be preserved plus a little more.

For those that are retired, I believe that preventing significant loss must be the first priority.

 

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