I used that title once before.
A reader commented that he was 80% equities, 20% cash and referred to himself as bullish. I replied that I was similarly allocated but would describe myself as leaning bearish.
I have commented once or twice that that labels such as these, while convenient, tend to be a waste of time. You save and invest for some purpose. You need to stay relatively close to some benchmark over longer periods of time and if you can successfully navigate one down a lot market you will add tremendous value to your long term results.
The media's quest to label any dip, do you think this is a correction or a more serious bear market, is a huge waste of time. A few weeks ago a reader left a series of comments that were "bearish" in nature. His point of view made sense but I perceived a desire and a priority on his part to be right.
This is a much different mind set than what I think is an easier path for making your way through the market. Anyone participating in the capital markets for any length of time is going to be wrong about a lot of things. I view the task of managing money, whether it is yours or someone else, as capturing most of what the market does (a little better sometimes and a little worse other times) over time, not seeking a moral victory for occasionally making a prescient market call.
The types of things I write about are actually about not having to be right in order to have success. Before you get too caught up in big macro calls, the market has an up year 72% of the time. That fact puts the wind in a lot of our sails and does a lot of work for everyone who goes long.
A lot of things can distract us from what we are really trying to do. Personally, I want to have enough money accumulated for when I need it. That's it. I don't remember whether my account beat the market or lagged it in, say, 2003. In a couple of years my result for 2007, personally and for clients, won't matter. The couple of big-ish macro calls I have been right on before don't matter now and neither do the big-ish macro calls I have been wrong about.
My goal for clients is similar to my personal goal with the added hope that I can smooth out the ride for them as market conditions dictate.
If you are going to manage your own money I think you really need to know what you are saving and investing for. If you need to smooth out your own ride (not everyone does) you better learn how to do it.
A short term goal is fine of course but most people are investing for something that is long term. Over the long term you are going to be wrong about many things. You only need to be right a little more often than you are wrong and not allow the things you get wrong take you down, that is to say (repeat really) don't make big bets.
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21 comments:
One of my favorite epitomes regarding success comes from Booker T. Washington.
"Success is to be measured not so much by the position one has reached in life as by the obstacles which he has overcome while trying to succeed"
Love Booker T. but Satchel Paige is more fun:
"Don't look back. Something might be gaining on you."
"Ain't no man can avoid being born average, but there ain't no man got to be common."
"Work like you don't need the money. Love like you've never been hurt. Dance like nobody's watching."
"How old would you be if you didn't know how old you were?"
And my favorite:
"I don't generally like running. I believe in training by rising gently up and down from the bench."
On Roger's point, if you find you can't quit fooling with your longer-term strategic account then open up a second account w/ a fixed amount of startup funding and an iron clad rule that funds can only flow from the second account back into the first (to 'pay off the loan' for e.g.) and never the reverse (if you lose you've got to get up from that table): If you've got some ability as a trader the second account will go up and you'll know you can add some alpha that way; if it doesn't go up you'll know you need to stick to your knitting but you may acquire some useful entry/exit and position sizing skills that will stand you in good stead longer term.
OT but interesting gap-up on DBA this morning; it's settled down a bit now (still up for the day) but someone with some semi-serious cash to blow sure thought something was going to happen on market open.
RW,
Great stuff. I have a little DBA here and there as a litmus test but candidly I do not seem to be getting a feel for it.
I have at least some feel for other things in the area (not that that means I am always right) but I feel like I am missing something in the underlying.
Roger, speaking of market conditions, would you share your thinking on the yield curve now?
Thanks.
Fed funds 4.75%
90 day 3.60%
2 year 3.97%
5 year 4.25%
10 year 4.61%
30 year 4.87%
So we have the letter V, or maybe a check mark?
This is not normal/ideal. The panic seems to be over, deals are getting done although w/concessions.
I tend to think that "not normal" is bad for financials--or at least creates a head wind.
At some point the curve will be normal. I disclosed having found a possible stock to buy when it happens but I cannot be 100% certain I will wait until then.
I am still in the normal recession is coming camp.
http://seekingalpha.com/article/18525-a-brief-look-at-the-130-30-strategy
I was reading the above article and would like to find more information about 130/30 strategies, do you have a copy of that WSJ on 130/30 funds?
Moreover could you give some advice as to where I can find more info about who supplys/demands them, the breakdown of the market (type i.e. sectors, geography), it's outlook and the main people/hedgefund managers who manage these funds.
Regards.
Please email me: write2val@gmail.com
you can find plenty with normal internet searches. I don't keep articles in that manner.
Yahoo! Search
Yahoo! News Search Results for 130/30 funds
I agree about the curve.
Think I picked up a small position in DBA around the same time you did. I more or less trust price data but have seen things like distributions and splits as well as analysis of asset composition get screwed up enough times that I prefer the real-world data I get from actual ownership.
DBA is more or less reacting way I thought it would -- rather volatile but reasonably in sync with crop success and stockpile conditions -- IOW not a matter of zig when equities zag but a matter of correlation with a very different cycle -- but I think the key on whether I establish a portfolio level position will be the yield and that's as dependent on the acumen of DB's trading desk and roll methodology as anything else; e.g., unlike oil, grain futures are quite commonly backwardated so I would expect positive return even if AG stockpiles were in good shape (grains sure aren't now) and the price level of DBA stagnant or even falling.
So I'll probably keep DBA for a full cycle at least to improve the odds I'm getting a decent read on it; e.g., right now I still think it has some potential to usefully augment a broad commodity product like DJP. But I'm my only client after all; you've got a somewhat more complicated row to hoe if you are analyzing it for possible use with clients.
I like your relaxed Buddha approach to the market, Roger, much less stressful than some of the day trading type hysteria that you get on some parts of the web.
I agree that a careful deliberate approach is best with the markets. Right now I'm still bullish as well, clearly the markets will pull back at some point, but you'd think they would make new highs first; over 14k for DIA and over 155 for SPY, SPY only at 152.6 now.
thank you for the kind word.
wouldn't some say the failure to make a new high is what would precipitate a new low?
PoTAYto PoTAHto
Hi Roger,
Is it okay to have a REIT ETF in a regular brokerage account? Is there any extra record keeping that is needed?
Thanks
Roger,
I think your comment re: 72% "up markets" is definitely one to keep on the wall, particularly if you're like me and have predicted 10 of the last 3 recessions/market falls/corrections etc.
The markets are definitely not neutral over time; sitting with short positions and waiting for the ("economically inevitable") correction can cost you (opportunity cost of capital, margin capital, and self-doubt), which again reinforces your general advice to steer clear of "market timing" strategies.
The one comment/concern I might raise (obviously not a revelation to you) is the lack of discussion regarding the "meta" analysis: you (correctly) advise having a plan and sticking to it (esp. in turbulent times), but there is scant discussion of when to "change plans"? The "I'm right, until I'm wrong" is hardly useful as a mantra. Do you have, or can you share, some of how you (objectively) establish (in advance) indicators warning you that your plan needs changing?
In any case, I enjoy your blog - keep it up!
Rick
i am not aware of extra record keeping on your part. There probably is extra work to do when your 1099 comes but the work should be done for you.
rick i'll try to answer your question in tomorrows post
"I view the task of managing money, whether it is yours or someone else, as capturing most of what the market does (a little better sometimes and a little worse other times) over time, not seeking a moral victory for occasionally making a prescient market call."
How true. I like the the title of the Ned Davis book "Being right or making money". I would rather make money over time than get an ego charge out of making a market call.
Roger,
I just ran across this study posted by Mebane Faber of worldbeta: http://tinyurl.com/yr5hvg
I think you will find this an interesting read.
RW:
if you find you can't quit fooling with your longer-term strategic account then open up a second account"
.....I was giving serious thought to this but with the first account as professionally managed. Who knows I might loosen up, have fun, and do better.
thanks tom, i can knock it out while Joellyn watches Grey's Anatomy, lol
For the reader who asked about 130/30, there is some useful info posted between Sept. 18 and Sept. 20 at this hedge fund oriented blog: http://allaboutalpha.com/blog/
The late Harry Browne was the first strong proponent of a Permanent Portfolio and a Speculative Portfolio. Although I never did agree to any extent on his investment recommendations, his dual portfolio prompt has served me very well for over twenty-five years.
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