Some Of The Best Investors Have Been Buying Dips And Building Stakes On The Market Dip


July 5, 2016, 4:30am EST

The Brexit unknowns continue to dominate the market focus today.  But by Friday, believe it or not, it may move down the list on the daily market narratives.  We get the jobs numbers this Friday.

Last month’s payroll number was a big negative surprise, coming in at just 38k new jobs created.  But the longer term average has been closer to 200k new jobs a month (fairly healthy).  That’s closer to where the number is expected to come in this week.

For the Fed, the negative surprise last month took a June rate hike off of the table.  And then came the Brexit.  Now rate hike expectations have been moved out as far as 2018 in the minds of market participants – and the market has even begun pricing in slim chances of a cut.

With that, global rates have continued to slide to new record lows, including the U.S. 10-year yield.  The 10-year traded as low as 1.35% today.  That’s lower than the darkest days of the global financial crisis (much lower), and the darkest days of the European Debt Crisis.

So, the last time we were down here, what turned it?  It was intervention – or at least the threat of intervention. It was the ECB stepping in and saying they would do “whatever it takes” to save the euro.

Despite all of the criticisms surrounding policymakers meddling in markets, intervention (in one shape or form) has determined many historic turning points in markets – something to keep in mind.

Still, the betting market on the timing of Fed hikes has been a wild swing of extremes for years now.  And the current bet of just a 13% chance of a hike this year looks like a heck of an opportunity to be on the other side.
Keep in mind, there was a lot of damage to investor psychology in the early days of this decade-long economic downturn.  That has created a contingent of investors that have feared another shoe to drop, hence the extremes.

That fear has also led to under participation in stocks, and it also leads to weak hands in the stock market. The “weak hands” are those that may own stocks, but have little conviction (and likely a lot of fear). This dynamic has created these episodes of market swings.

But U.S. stocks still remain not far from record highs. And as we said last week, there also remains an incredible number of stocks that trade at cheap valuations (amazingly).  But when stocks go on sale, most choose to run for the exits rather than take advantage of the opportunity.   And it’s common, in those scenarios, to find the best investors in the world taking the other side of the trade from the masses.

Warren Buffett has famously said a simple rule dictates his buying: “Be fearful when others are greedy, and be greedy when others are fearful.”  He’s amassed one of the biggest fortunes in the world, largely on that philosophy – being the right place at the right time and acting.

With the above in mind, it’s no surprise that over the past few trading days, the 13D filings have been coming in fast and furious.  A 13D filing is a public disclosure made to the SEC by investors managing $100 million or more.  If these investors buy or build a stake in a public company that exceeds 5%, they are required to disclose it to the SEC within 10 days.  These stakes generally give the investor a controlling interest in the company, and the shares are acquired with the intent of waging some influence on the company’s management. With that said, some of the best have been snapping up shares in new companies in recent weeks and/or adding to existing stakes on a dip.

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