A Look Back at 2009: The Lag of Money

As value aficionados, Warren Buffett and I have one weakness in common: We assume that when we see true "value," others will see it as well. Our mistake: there's too much dumb money involved to profit quickly from that insight.

So when Buffett trumpeted buying value stocks in October of 2008, I thought he was right. In fact, during that time I was beginning to buy because I saw lots of value getting hammered: ADBE and AAPL just to name a few. Companies with decent balance sheets, good product pipelines and market leadership. More importantly, my market signals pointed to a prime buying period for value. Stocks 50% off or more.

So it was with dismay when in Feburary and March, the bottom fell out. Not because the stocks lost fundamental value, but because an inane stimulus bill plus market uncertainty with a new president just made the market pee pee in its pants. Again, my market signals pointed to a prime buying period for value. This time, stocks 75% off or more.

Fortunately for me, I dove 100% into equities. Frankly, it was something I hadn't done until shortly after 9/11 -- run out of trading cash. I probably left $300 cash on the sidelines just because I didn't want to deal with odd lots.

And while I was certainly confident it was the right move from a value standpoint (and in retrospect, it certainly was), it definitely troubled me why people didn't see value in the market: not in March, but in October.

Looking back, I wonder if there's a phenomenon known as the "lag of money," which is this: The smart money gets in months too early, and the dumb money gets out months too late. Don't get me wrong, it wasn't a mistake to start buying in October -- the value was clearly there -- but only if you trusted in and held value (because if you were stop-lossing, you would've been screwed come March).

I just wonder if there's a way to quantify and identify the length of that "lag of money," assuming it even exists. Because to a value trader, that would certainly fatten your margins. My gut tells me VIX would be helpful, but how, I'll have to research that.