Timequake

Well, that was one heck of a trading day.

When we were watching the Wimbledon I told my wife that I’d rather be a trader than Roger Federer. Because at least I don’t have to talk to freaking Sue Barker at the end of each trading day.

And I was in no mood to talk at 7pm tonight. I what was by far my most volatile trading day to date, at one point I was up 4% - which would have been my best day – only to give it all back in a little more than an hour. Big swings indeed.

Benoit Mandelbrot equates volatile periods with an acceleration of trading time. And that hour lasted at least a week, by my watch.

So the rumour was that Bill Miller finally capitulated on his Freddie Mac position. Miller owned about 8% of Freddie. And if Q108 was ugly for his particular brand of financial ‘value’, I imagine mid-May to the end of June was genuinely gruesome. I’ve got huge respect for Miller, even if I never bought his buy case on Citigroup for the past year. Or the US housebuilders for that matter. And I suspect that the rumours of his troubles, true or otherwise, likely carry some real information.

The last time a major ‘value’ investor capitulated was when Julian Robertson exited the world of ‘mouse clicks and momentum’ in March 2000. Robertson’s portfolio at that point – stuffed with gold stocks and old economy stalwarts – would have gone on to shoot the lights out over the next eight years. That outperformance would have started the day after Robertson closed Tiger.

I have a central view about panics. At the moment of a panic, volatility spikes. More volatility means less visibility. Less visibility means more perceived risk. It means that the risk premium is at unnatural highs. It means that the market is paying you more than at any other time to take the risk of owning stocks.

The irony of panics, then, is that they are the safest time to buy stocks. Because no one wants them – you have the biggest margin of safety when you buy.

Now I’d already got long of stocks last week, including a 5% chunk of NAV long GM. And what I did during the panic today was, er, nothing. I ended 1% up for the day, with all my positions unchanged.