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Coping With Craziness

The market's incredible volatility has made me a shell of my former, long-term-oriented self.

Without a doubt, 2008 will go down in the books as the most confounding year ever for investors, pros and amateurs alike. It's not just that stocks are way down. This year has been down and dirty, with whiplash-inducing sector rotation, prodigious hedge-fund redemptions, and the almost unfathomable decline and death of some of our most famous financial institutions.

The whole year should be put into what Warren Buffett calls the "too hard" file. Word is that one trader went entirely to cash and left the office to play the guitar on the beach at Santa Cruz until sanity returns to the markets. Sounds like a good investment strategy to me.

Losing my cool. The last week of September and the first week of October were particularly bone-chilling for me. Spastic drooling had never been one of my problems. Now, I ask for the dribble cup along with the Wall Street Journal. The market's incredible volatility has made me a shell of my former, long-term-oriented self. I now think and trade like a hedge-fund guy. Recently, my cash and short positions totaled 40%. Three days later, they totaled 10%.

During the market's plunge this fall, I beat Standard & Poor's 500-stock index by about four percentage points. Some "achievement." It's like saying I've broken fewer bones than Evel Knievel.


On September 29, the day the House of Representatives nixed the first version of the financial-rescue package, the S&P 500 fell 8.8%. When my wife, Adele, came home, she asked me how I did that day.

"I had the best day of relative performance I've ever had," I said glumly. "I was down only 5.4%."

"That's great!"

"Tell that to my clients."


Oh, my clients. They are unhappy and scared. Some sound like kids who have been stiffed on their birthday presents. They expect more from me, much more, and are now bombarding me with e-mails asking when the carnage will end. Each message feels like a kick in the gut. I know I've let them down, that I should have seen this maelstrom coming. I didn't.

But I have reasons to hope. Several clients sound as if they're close to abandoning stocks forever, having completely forgotten how much money we made years ago. And their well-crafted, long-term investment plans? Those may soon become ancient history, too. The market tends to rally when people are apocalyptically bearish.

Abundance of values. And there are so many cheap stocks around -- stocks that have fallen 20%, 30% or 40% in just a few short weeks for no fundamental reason. Believe me, I know. I own some of them. The declines are maddening on two counts. First, they're killing my performance. But second, I know from sources that much of the selling is coming from hedge funds that are liquidating. This isn't calm, rational selling by people who have simply changed their minds about the merits of certain stocks. It is involuntary, get-me-out-now asset puking that depresses prices while scaring off buyers who have no idea when the next bulimic seller will dump his stake.

On one wild day this fall, Live Current Media (symbol LIVC.OB), a stock I have recommended in this column, fell more than 35% during the day because, so I'm told, a hedge fund wanted out. I still like the company. In fact, I bought more on that scary day.


But soon afterward, my palms got sweaty. I know the current price represents good value, but who knows if two or three other hedge funds won't soon decide to dump their shares? What's to stop this 75-cent stock from going to 50 cents, at least temporarily?

I don't know what will stop it -- and that's one of the things that drives me bonk-ers about the current market. I see a value, I buy some shares, and the sucker goes lower. Then it's rinse and repeat and repeat and repeat. Oh, the horror.

Columnist Andrew Feinberg writes about the choices and challenges facing individual investors.