Have we come too far, too fast?
Of course we have, this is getting ridiculous! No one was a bigger bull than I was during the March crash, I wore out my BUYBUYBUY button telling people it was an opportunity of a lifetime, you can look up my posts here so I won’t quote myself but I will say that we have now hit the targets we set at that time for the bounce we expected off that crash – the fabled 40% line, a 33% retracement of the crash from our 2007 highs to our March 9th lows. Had we not hit it in less than 60 days, I’d be thrilled but, right now, I’m just nervous.
The problem with the rally is we’ve gone up and up and up onlessvolume than we went down with, indicating there has not been a buyer to replace every seller. Imagine that there were 100 shares of the Dow and all were held by someone at 14,198 in October of 2007and 1/2 the people sold until the “value” dropped to 6,469 (down 55%) in March of 2009. Now we had a surge of interest by “bargain hunters” and maybe 1/4 of the shares were bought and sold until the “value” went back to 8,426 (up 30% but still down 40% from the top). What that really means is 75% of the shares still haven’t found buyers at any price so their value is unproven. You can always find an idiot, or several idiots to buy too high or sell too low (just like homes in your neighborhood) buy once a whole bunch of idiots get together and buy too low or sell too high – they end up setting a price for you, even though you are a buy and hold investor.
That’s how the markets work, the relatively slim amount of people who exchange shares every day set the price for the owners of the company that has very little to do with the long-term fundamentals. Warren Buffett spoke on that topic this weekend at his conference. Did the value of RT really fall from $8 per shareto .80 and then go back to $8 over the course of 6 months or are idiots trading the stock? Perhaps they had customers in September, then none until March 10th, when they all came back again but I doubt it. TIN is another one that went on a…