Easier Said Than Done, But Here’s Howard Marks on Forced Liquidation

Most investors—and certainly most nonprofessionals—know little about technicals. These are non-fundamental factors—that is, things unrelated to value—that affect the supply and demand for securities. Two examples: the forced selling that takes place when market crashes cause levered investors to receive margin calls and be sold out, and the inflows of cash to mutual funds that require portfolio managers to buy. In both cases, people are forced to enter into securities transactions without much regard for price.

Believe me, there’s nothing better than buying from someone who has to sell regardless of price during a crash. Many of the best buys we’ve ever made occurred for that reason. A couple of observations are in order, however:

• You can’t make a career out of buying from forced sellers and selling to forced buyers; they’re not around all the time, just on rare occasions at the extremes of crises and bubbles.

• Since buying from a forced seller is the best thing in our world, being a forced seller is the worst. That means it’s essential to arrange your affairs so you’ll be able to hold on—and not sell—at the worst of times.

This requires both long-term capital and strong psychological resources. And that brings me to the second factor that exerts such a powerful influence on price: psychology. It’s impossible to overstate how important this is.

Source: Marks, Howard (2011-04-19). The Most Important Thing: Uncommon Sense for the Thoughtful Investor (Columbia Business School Publishing) (pp. 26-27). Columbia University Press. Kindle Edition.

Sometimes, Stocks Go To Zero


GT Advanced Technologies – the company behind one of the hottest stock market stories in the past year, the next big growth name that was supposed to make sapphire glass for future Apple products, filed for bankruptcy this week.

A strong bull market in solar stocks, coupled with a multi-million dollar contract from Apple, catapulted GTAT from $4 to $20 between July 2013 and July 2014. Apparently, Apple turned out to be too big of a bite for $GTAT and they could not deliver to their contractual obligations. The result – Chapter 11 of what used to be an almost 3-billion dollar company just two months ago.

Trends start and end all the time. If you don’t know why you are in a stock, you won’t know when it is the right time to exit. If price was the reason to buy a stock, price should be the reason to sell it.

There was absolutely no reason to own GTAT before its bankruptcy announcement. It was in a well-defined downtrend with price trading below all its major moving averages – 20-day, 50-day, 200-day. This is why following price matters. You could have the greatest growth story in the world, but until the market agrees with you, you cannot make a penny. Market’s way of agreeing with you is by sending your stocks to the 52-week high list or at least to new 50-day high from a proper technical base.

Financial markets constantly discount events that have not happened yet. As a result, they sometimes discount events that will never happen. A stock could quintuple in a year based solely on investors’ speculations and expectations for future profits. The stock market might be forward-looking, but it is not stupid or naïve. It constantly looks for feedback that will confirm its discounting of the future. When it gets tired of waiting or it doesn’t receive the expected feedback in terms of earnings and sales, it quickly reverses in the opposite direction.

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Why Did Warren Buffett Buy An Auto Dealer


This morning, we woke up to the news that Buffett is buying Van Tuyl Group, the nation’s largest privately held car dealership chain. Not only that, but Warren said that he intends to buy more.

I wonder what Buffett is seeing in U.S. car dealers. With auto stocks in free fall and the rise of Uber and Tesla. Maybe, real estate?

— Ivaylo Ivanov (@ivanhoff) Oct. 2 at 07:32 AM

Remember when people were making fun of Buffett for buying a railway a few years ago. He was spot on this major trend. He thinks 10yrs ahead

— Ivaylo Ivanov (@ivanhoff) Oct. 2 at 07:33 AM

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