Enduring Mr. Market’s Moodswings

The relentless slide in global stock markets continued this week. In U.S. stock markets, the Dow Jones was down 1.90%, the S&P 500 fell 1.89% and the NASDAQ slumped 2.41%. Global stock markets held up surprisingly well, with the MCSI Emerging Markets Index falling a mere 0.26%.

Only two of your Alpha Investor Letter positions eked out gains this past week, with the iShares MSCI Frontier 100 (FM) gaining 0.55% and Markel Corp. (MKL) up 0.44%.

A handful of your positions fell below their 50-day moving averages and moved to a Hold. These include the WisdomTree Japan Hedged Equity (DXJ), Market Vectors Biotech ETF (BBH) and last month’s pick, Skyworks Solutions Inc. (SWKS).

All of your current positions are a Hold, except for Berkshire Hathaway (BRK-B) and Market Vectors Gulf States Index ETF (MES).

With oil prices plummeting, you were stopped out of the PowerShares Dynamic Energy Exploration & Production ETF (PXE) at a loss.

The current sell-off in the U.S. and global markets — along with widespread negative sentiment — has made the last six weeks a very uncomfortable time for investors. Indeed, it’s tough to even remember that the U.S. S&P 500 had actually hit a record high just a few weeks ago on Sept. 18.

But if you’re a contrarian, here is some good news…

A week ago, Warren Buffett came out on CNBC and said that he was actively buying stocks. The last time he had done something similar was on August 8, 2011, the day the market bottomed after the U.S. government’s AAA credit rating was downgraded by Standard & Poor’s.

One of the secrets to Buffett’s success is to profit from Mr. Market’s Moodswings. This metaphor for the stock market comes from a chapter in Ben Graham’s classic and value investor bible, “The Intelligent Investor.” Buffett has called it the single most important thing he has ever read, so it is worth recalling here.

On some days, Mr. Market is euphoric. On other days, he’s very depressed. If you catch him on a euphoric day, he wants a very high price for his shares. If he’s in one of his down moods, he’s willing to sell you his shares for a pittance. For the past six weeks, Mr. Market has been in one of his down moods.

Inevitably, Mr. Market’s moodswing will prove temporary. And often the hardest hit markets can soar the most. As Harvard economist John Kenneth Galbraith put it: “The financial memory is very short.” I still expect that we’ll see the traditional fourth-quarter rally in global stock markets. By then, this pullback will be but a distant memory.

Portfolio Update

Berkshire Hathaway (BRK-B) dipped 1.03% over the past week — an unusual one in which the major averages lost nearly double that amount. Berkshire Hathaway acquired Burlington Northern Santa Fe (BNSF), the second-largest freight railroad in North America, back in late 2009. Last Thursday, Berkshire signed an agreement to acquire the Van Tuyl Group, the largest privately owned auto dealership group in the United States, with annual revenues of nearly $9 billion. BRK-B is a BUY.

iShares S&P Global Timber & Forestry Index (WOOD) gave back 0.92%. Although WOOD dipped below $48.50 early last week, it recovered well and maintained its significant $49.00 support level. Although timber has had a tough year to date, WOOD gives you the safety of well diversified exposure to nearly 25 forest and timber companies. WOOD is a HOLD.

Global X Guru Index ETF (GURU) fell 3.55% over the past five trading days. The market sell-off has been both broad and deep over the past few weeks, and the hedge funds category has taken its lumps as well. GURU has held a near-perfect record of staying above the 200-day moving average (MA) for the past several years. However, this exchange-traded fund did touch this mark last week, spiking trading volume eight-fold as traders bought in force. GURU is a HOLD.

Market Vectors Gulf States Index ETF (MES) dipped 0.27%. The Gulf States region is one of the few areas around the globe that has remained relatively free of the global pullback over recent weeks. It has even managed to sidestep the terrible drubbing emerging markets have suffered as well. This “region in the sands” remains an oasis in your portfolio. MES remains a BUY.

iShares MSCI Frontier 100 (FM) gained 0.55%. Like MES, FM also made it through September nearly unscathed. For all of the perceived higher risk that comes with investment in these newer “frontier” economies, FM has offered amazingly robust protection from the turbulence of late. FM is a HOLD.

P.S. Join Me for the World MoneyShow London, Nov. 7-8
I invite you to join me for The World MoneyShow in London, Nov. 7-8, at the Queen Elizabeth II Conference Centre. I will be presenting on Saturday, Nov. 8, 3:30 – 4:30 pm. Register at no charge by calling 1-800-970-4355 and identify yourself as a Nicholas Vardy subscriber by mentioning code 036913 or by clicking this link and following the instructions.

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