The funny thing about predictions

Posted on June 18, 2013 by

Okay, you think rising oil prices will be a headwind for consumers in the second half of the year.  ”So what does this mean for the market, where will the S&P 500 trade at year end?”

We hear this question way too often.  Raise your hand if you want to hear this poison. Would anyone disagree that the world would be better off without James Glassman or Marc Faber?

wiz

Prognosticators views are typically binary, good or bad.   Their is a great irony here; peoples’ ability to consistently predict the future is no better than 50%.   The only time that you might be able to pull a nugget of wisdom is when the prognosticators all agree, then it’s fade city.

Forget about forecasting.  Learning about the history of cycles and recognizing where we are now is a far better use of your time.

See 1927-1933 Chart of Pompous Prognosticators 

See Also Gold could go to infinity

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I’m sure of it

Posted on June 6, 2013 by

“I can calculate the motion of heavenly bodies but not the madness of people”
Isaac Newton, circa a long time ago

]Today on stocktwits somebody said to me “im sure of selloff.”  When I saw this, 3 trillion thoughts exploded in my head, neurons fired like a gatling gun.  How can anyone, in times that are so different (see what I did there) be sure of anything?  If I knew for a fact that tomorrow NFP would crush expectations (+167k) I still would not feel comfortable leaning too heavily in either direction. How markets digest news these days is awfully perverse.

The market is a game of probabilities, this we are sure of.  The louder you scream, the higher the probability is that your expected outcome is negatively correlated with reality (I’m looking at you, Peter Schiff).  Being sure that if you are right, you will triple your money, if wrong your money will evaporate, is one thing.  Defining your risk is cool.  As far as having opinions?  I’m not as sure as that guy, I’d rather be net confused.

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Stop scaring me, bros.

Posted on May 31, 2013 by

“Two things are almost always true: 1) The world keeps getting better and 2) The people always think it’s getting worse”- Penn Jillette

Last night I laid in bed and watched what I thought was a commercial for World War Z.  I was surprised to see this was a different end of the world movie called White House Down.  That got me the thinking, didn’t that EXACT movie just come out, Olympus Has Fallen?

This seems to be the flavor de jour these days, the whole end of the world thing.  Panic sells, I  get it.  This is not a spurious correlation; when the weather gets lousy people turn on TWC, when the market gets scary people turn on financial tv.  You’re not turning on TWC when it’s 85 and sunny and you’re not certainly turning on CNBC or Bloomberg when we’re melting up and the pullbacks are sub 2%.  

There is ALWAYS  a reason to be fearful.  Remember the debt ceiling, the fiscal cliff?  Consensus was that one or both of these (non) events were going to derail 3 year old cyclical bull market.  Just remember, over the last 50 years, 73% of the time the market is up a year later from any day that you bought it .  The take away?  Enjoy life, worry about the things you can control.  The graphic below from Carl Richards says it all Image

 

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Who’s the greater fool?

Posted on March 11, 2013 by

I watch the market closely, too closely in fact.  I’m not a day trader and my job certainly does not dictate me having all these boxes on my screen.  I am watching with fervor to find some weakness, anywhere.  I am trying to find any shred of price action that will give me hope that the market will pull back and let me in.  What I am seeing does not confirm my hopes.  The market still looks strong, making new highs after new highs with banks leading the way.

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I bought something last week but remain embarrassingly under-invested, sitting in 70% cash.  Who is the greater fool now?  The person paying up for stocks at these levels, or the under-invested fool waiting for a pullback that might never come? 

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Shocking, I was wrong

Posted on March 8, 2013 by

I do a pretty good job of not getting upset over bad decisions or losses that incur while playing in the stock market.  After all, the only way to improve is by making mistakes (lots of them) and learning from them.  Fortunately for me after almost 3 years in the market I have made almost every mistake there is (with the exception of blowing up).  Unfortunately for me, I’m still pretty lousy.

Last week I wrote about most of my stops being hit, leaving my portfolio with an almost 80% cash position.  I wasn’t calling a top in the indices, but looking back at my decisions, it’s hard to say I would have done anything differently (with the exception of getting stopped on Linkedin, that was pure stupidity)

Most of my positions were looking very vulnerable, the list includes SBUX, BAC, APC and CF.  They all looked like they were rolling over.  Before I made this decision to bail, I accepted the fact that this might just be the market shaking off the weak longs.  No shoulda coulda wouldas, I was pretty lucid when I made this decision.  Now that I was clearly wrong, it’s helpful to look at what I could have done better.

Here are 4 lessons I will take with me:

1)  In redonculous, multiyear uptrends, be a little more lenient with your stops.

2)  Get back in faster, these names recovered and I was afraid to pull the trigger when they passed my re-entry points.

3)  I was afraid of the potential government shutdown on Mar 27 and the effects the sequester might have had.  Fuck political headlines, they are impossible to invest/trade around.

4) Drink more Red Bull

So I’m wrong and still in too much cash, even my dog won’t talk to me anymore.

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I’m a weak long

Posted on February 27, 2013 by

With this widening in the indices, I think it is prudent to either do nothing and respect the fact that there will be broad swings in your portfolio, or make the decision to step aside and live with it.  I chose the latter. With the 6+% move that we have seen in the large caps since Jan 1 and the 4 year cyclical bull market we are in, I decided to take the majority of my chips off the table and watch the market with a less biased view.

Last week and earlier this week most of my stops were hit, leaving me with around 80% cash.  This was a decision that I made and I feel no worse today after watching the Dow Jones Industrial average close +176 points and making a new multi-year high.  I am taming my inner junkie and watching where the market wants to go.  We saw similar price action in 2011 and 2012, with the indices ripping to start the year only to see much of the gains vanish in the spring.

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The best thing about being an individual investor is that you are able to wait for your pitch.  I have no one to answer to but myself.  I get to dictate my decisions for better or worse.  Who cares if you are wrong for a day, a week or longer?  I have made my decision and I am sticking with it until I see new setups with favorable risk/reward.

Shaking out the weak longs is usually healthy for the markets, so to all long, you’re welcome.

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Tame your inner junkie

Posted on February 26, 2013 by

Right now the market is looking vulnerable to say the least.  Nobody knows if what we are seeing is a  short term run of the mill 3-5% correction or something a little more destructive.

I am about 80% cash and am willing to forgo the fact that in a week this might have been an excellent buying opportunity   We do not trade with the benefit of hindsight.  What we all have been watching for the last 2 weeks is momentum drying up and the wrong sectors leading.  I am taming my inner junkie and not initiating any new positions for the time being.  I am perfectly happy to watch and see where the market wants to go.  Having a heavy cash position allows you to see things more clearly, removing the emotions that are otherwise impossible to curb.

It looks like there is a vacuum down to 1475 which was the September highs and was tested 4 times in January before we broke free to multi-year highs.  This will also roughly coincide with the rising 50 day moving average which still gives bulls the benefit of the doubt.Image

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