I have never been bear hunting.

And after seeing Mr. DiCaprio’s scene in The Revenant, I am pretty sure I likely will never go.

That being properly noted, were one interested in hunting bear – it is the season.

The good news?

There are so damn many of them around that you could hit one blind-folded with one hand tied behind your back.

A Quick Update

For almost all of last year, we held an excess level of cash. As repeatedly suggested in these notes each morning, I spoke of the feeling of walking in quicksand.

Well, 2016 has created the stage one looks for when wai ting for fear. It has created the stage one looks for in massive transition. It has created the settings one likes, a) if one can focus on the long-term and b) if one has excess cash waiting around for a year or more.

I recognize all the frustration of having extra cash. I realize it appears a waste of time. I fully support the many conversations and questions we had when the market was bouncing a bit and we had “too much cash.”

I would lastly remind us all of the two words I use a lot in these morning notes (three actually): patience, discipline and TUMS.

While one admittedly rarely has enough of any of them when you need it most, all three have begun to pay off.

Numb

Most of the crowd is once again comfortably numb. They have given in as can be seen by massive outflows.

Cash is now being raised – funds are selling, hedge funds got clobbered for the most part and the big boys are licking their wounds as very little worked last year.

The start of 2016 has caught many flat-footed and has caused the headline pain to sky-rocket. One cannot escape the bad news and pending doom.

My thoughts? This is nearly perfect. Nutty right?

Don’t get me wrong – it is not perfect if you need capital right this morning that has been in the market. However, if you need capital right this moment and it has been in the market, my suggestion is to sit down with a solid financial planning team you can trust and create a plan whereby you do not feel that emotional pain of risk.

Something I learned long ago: Emotions can be very, very expensive.

My Point?

In the midst of all the craziness, we have once again reached that window where we hear those famous very expensive words: “it’s never been this bad.”

Oh yes it has…but that is another morning note.

For now, let’s understand this very ugly little secret on Wall Street and on building wealth:

A long-term investor makes most of their money on where they buy–not where they sell. It is how one accumulates a position which ultimately stipulates the limtis of the upside available.

It is how one buys that tells you how much can be made. Over the long run, data repeatedly suggest that a long-term view i s more profitable than a short-term view. The length of one’s horizon directly affects the perception of one’s risk.

If I am focused on the proper demographic understandings, then I know where the people are.

If I know where the people are, then I know which markets to focus upon.

If I know which markets are most effective to focus upon, I have quietly hunted on the side of the 80/20 rule of the markets.

What’s It All Mean?

If we get lost in the headlines and short-term garbage, it looks like chaos. But at a higher level, chaos is not random and indeed can be patterned.

Humans are basically the same. We all bleed, we all feel, we all have emotions and most of us feel the pain of those emotion s at precisely the wrong time.

This is not new. What must be understood however, in the dark creases of our hazy mind, way back there in the places we don’t generally want to go, is this:

We get the best value when everything stinks. We get the better deals when everyone is afraid. We get the best long-term return basis/risk when all about us seems doomed and fraught with likely failure.

As a long-term investor one must eventually begin to realize that the process of markets and wealth are a never ending climb up a mountain.

That mountain has cracks and crevices along the way – up. There are storms and squalls that block you from the path – and then they clear.

A Picture or Two

Are we there yet? The hunt is on….After the worst start to a year in history, bullish sentiment continues to take a hit. According to the weekly sentiment survey from the American Association of Individual Investors (AAII), bullish sentiment dropped to 22.17% this week from last week’s level of 25.07%.

This now makes it 44 out of the last 45 weeks that bullish sentiment has been under 40% and six straight weeks below 30%. Investors are not happy campers. As stated yesterday, they have sold mutual funds at a nearly $250 Billion annualized pace over the last quarter.

A staggering amount of fear.

Perfect for hunting bears.

The fearful have already sold a ton – even as the news is not news anymore.

The chart above is clear.

It shows that just 16% of the stocks in the S&P 500 are trading above their 50-day moving averages. This chart measures the data over the last year. As shown, only the crash last August saw a similarly violent move down to these deeply oversold levels.

Of the ten S&P 500 sectors, four now have readings below the 10% level – Energy, Industrials, Technology and Telecom. Health Care and Materials are both right at 11%. The two sectors holding up the best are Utilities and Consumer Staples. Unsurprisingly, these are the two most defensive sectors of the market. (see the collage below)

In Summary

It is indeed a good deal to digest and the whipsaw effect is not to be misunderstood or understated. That feeling we all have of being swallowed up by a trap-door opening below our feet is understandable.

Here is the tough thing though: That is what all windows of good buying values for the long-term investor feel like – every single one of them.

This Armageddon Now is very likely another one which converts to Armageddon Later. We have had many of them as we have trekked up this mountain together.

Remember…the window is open…get your licenses and ammo ready. It’s bear hunting season. It may last awhile.

If you are lucky, you might even snag a Black Swan or two as well.

Patience and discipline my friends…patience and discipline.

More tomorrow.