One of the great side benefits I receive from writing a financial market report that attracts thoughtful people (professional and private investors alike) is that I gain the benefit of their thoughts from time to time. This email from Michael S. came in response to NFTRH 380 and some of my comments therein. His thoughts are reproduced (with permission) for the benefit of anyone reading, and were of benefit to me as well. Personally, I am trying to be more nimble in trading and have kept cash and risk ‘off’ liquidity vehicles (Treasury bonds) above 90% in this bear phase and indeed usually did so in the year-long momentum loss phase in the stock market, which eventually resolved into this bear phase.
I enjoy reading your reports. You lamented not making as much on Google due to being shaken out of Amazon [biiwii edit: I took a profit on AMZN, but was shaken out of GOOGL due to AMZN results]. It happens.
One thing that resonates when reading your report is your conservatism. The fact is many try(most fail) in making money during markets that are in transition now. The key is to do LESS; be patient, preserve capital and don’t try to force trades. It is extremely difficult to show profits in a market that is heading down when liquidity to BUY is drying up. One has to choose between being SHORT…which most don’t know how to do successfully or have the capital to sustain down periods, or, alternatively, remain in cash. The best way I have learned to beat the market is to cut back on trading during down periods, keep position sizes smaller, watch more, do less and let the market tell you where it’s headed. In this market, one should be trying to preserve capital, not trying to beat the market. The small investor has a huge advantage over institutions and large capital because their buys and sells as indistinguishable…big institutions leave their footprints everywhere in volume.
Personally, I look for quick entry and exit points. I don’t hold onto positions for long, and I have learned that BUY and HOLD died back in 2000. This market is extremely dangerous and personally, you can make a lot of money simply by not LOSING money. This is a relative performance game, but it is highly effective over the long term. PRESERVE CAPITAL! That message has never been communicated to investors by anyone I have read and I believe the downfall of most investors is they fail to recognize when the market has changed character and fail to [adapt] to the change by changing their trading/investing style. The key is to limit losses, take advantages of temporary misplacing in the market, but in any case unless and until the market shows it has stabilized and a trend emerges there is no point in risking capital against professionals. You can’t beat the market and the best things is to try to align yourself with it ONLY after it tells you what to do. Most investors are gamblers at heart and simply give up profits earned over time because they believe they always have to play. This is a time to stay on the sidelines, walk away or wait for a large drop, after which most of the selling has already happened. When that happens, most investors won’t return because they have lost confidence, but someone was buying when prices dropped. The hardest thing to do is buy when everyone is panicking. But even though you got out of your SPY last week, shaken out…fundamentally, you got it right. But buying and holding…now that’s the hardest thing. I bought deep on Jan 21, sold a couple days later, and though I wanted to go back in to buy, I didn’t. It happens!
Note: I’m up about 2% YTD, was up 22% last year. I don’t buy and hold. That game is all about being brainwashed by marketers. But if you never sell, then how can you make money?
Thank you for your excellent reports.