In the last couple of days I've had the chance to encounter a very wide range psychological processes to the current sate of affairs in the US economy.Your level of concern about all that is going on is what it is. There are people more concerned than you are and people who are less concerned. It is possible that the people more concerned than you are themselves not concerned enough or that the people who are less concerned than you should be more aggressive than they are being.
In the last few days I've spoken to one of each along with a third person who included me on a fear monger type of email. The psychology of these people is what it is and while I may disagree with them and they me they could be right and I could be wrong; maybe it is Ivory soap and tuna time or maybe I should take all the equity out of my home and buy solar stocks on margin (neither of the people I spoke to are anywhere near that extreme).
The person who might seem overly concerned and the person who appears to be whistling past the graveyard are both driven some sort of psychology and either one can be beneficial and either one can be costly. Does it matter if you run out of money when you're 80 and healthy because you were to aggressive or too conservative? Does why make a difference at that point?
Most of the time the capital markets work. When they warn of trouble (the stuff I've been writing about for four years) the best thing is defensive action. Defensive action means different things to different people but something that can spare a little pain. Then when things get healthy again a normal positioning then becomes appropriate. For now things are not healthy so the best thing is just to wait (assuming you did something defensive early enough to miss some of the pain). Things may get healthy soon or they may not get healthy for a while but what is nice about something like the 200 DMA is that you don't have to be exactly right, you can afford to wait as long as it takes and your psychology won't get in the way.
Or maybe we should move to a small rural farm in New Zealand, as pictured above, and grow our own vegetables.
15 comments:
Roger--this is off topic, but along the lines of giving you a chance (which I don't think you take often enough) to celebrate a good call you made with your clients' money, I would ask in hindsight how you knew (or at least had a good enough intuition to act with real money) that the BofA/Merrill merger wouldn't work out. At least in the short term, you certainly look right. You often describe what do you as simple--or at least simple to you--but as an avid reader of your blog it occurs to me often that sometimes you'll make broad calls about something working on not working that doesn't seem simple to me. Was there something simple that led you to believe the BofA/Merrill merger wouldn't work out? How can a small-time investor make a similar decision without the wealth of experience/information that you have? Or is this a reason for hiring (good) advisors?
Thank you for the kind word. I wrote about it in detail for TheStreet.com.
I think the entire episode was quite simple. Big mergers very rarely work and so are better to sell. That is not a new idea, I've known it for a while and benefited personally from. Before I did this job I owned AOL perosnally and sold it the day of or the day after the TWX merger--same thought process, big mergers rarely work.
Specific to BAC MER, if they had waited one day they would have gotten it for half the price (this was the same weekend LEH failed remember). Also the due diligence process made no sense--sorting out a troubled IB on a Saturday afternoon? Really?
These were simple questions predicated on a simple concept, big mergers rarely work. Let's not forget that about ten minutes after I sold they banned short selling and I left a lot on the table but am obviously very glad I got out and am convinced that the selling a big merger will be correct far more often than it is wrong.
Thanks--I hadn't seen that article from TheStreet.com. Makes me neverous about the Wyeth/Pfizer merger. I'm young and still in the picking-superstar-mutual-fund-managers-and-hoping-future-performance-is-as-good-as-past-performance-despite-being-told-many-times-that-past-performance-doesn't-equal-future-performance phase of my investing lifetime (think Berkowitz, Whitman, Winters, Montgomery, etc.) and know that through them I hold a lot of PFE. I guess I should re-read your post from this past weekend a few more times.
roger, what was the thought behind your post today. it didn't say anything? yes some people (naive ones) think this will end soon and others (more realistic) think this will go on through 2010, or beyond.
OK?
No one knows when this will end. There are many overly paid people who pretend to predict the future and try to sell you on this but no one knows. Just watch CNBC for a day and you'll see. Don't forget, CNBC is a television station -- they are a vehicle to sell ads.
I think you need to have your portfolio aligned for good and bad all the time.
I went to a presentation the other day from a private bank. It was their best idea portfolio. It included long equity managers, fixed income, hedge funds, currency etc ... and they were still down 21% last year.For this privilege, you would have paid 1.85%. You could have owned 50% SPY and 50% AGG and been down 18% and paid less than .25% in fees.
Towards the end of Benjamin Graham's life he said that stocks were too risky an investment to own.
I appreciate that you put your thoughts out there and you "eat what you kill," but the bottom line is that we spend way too much time thinking about our portfolio's. If we only spent more time doing productive things with our lives we would all be a lot better off.
If you want better returns, save more, reduce debt, and live within your means.
Hi Roger,
I was reading the February issue of Index Investor and thought you may find their following comments on uncorrelated alpha strategies interesting:
Rob from WI
"To implement our model portfolios' allocation to uncorrelated alpha in 2009, we will be using ten funds, with two each in five uncorrelated alpha strategies.
Two funds are based on an equity market neutral strategy: JP Morgan Highbridge Statistical Market Neutral fund (HSKAX) and the second is OGNAX.
The next two funds are based on variety of arbitrate strategies: AQR Capital has recently introduced a new mutual fund, the AQR Diversified Arbitrage Fund (ticker ADANX, $5,000 minimum investment, 2.32% annual expense charge, which is temporarily capped at 1.50%). The fund will invest in a range of arbitrage strategies, including merger, convertible, dual class, stub, when-issued, and distressed securities. In theory, the fund should produce returns with a relatively low correlation of returns with those on major asset classes, and for this reason represents a very interesting new investment alternative for retail investors. The other is ARBFX, which has a longer track record (average three year return of 4.05%), and a higher correlation with the S&P 500 (.33 over the past three years).
In addition to DBV, we will be adding ICI, an iPath Exchange Traded Note as our second currency carry strategy. At .65%, its annual expenses are lower than those on DBV (.81%).
In the long/short equity category we will continue to use HSGFX as well as PTFAX.
Our last strategy is global tactical asset allocation. The first fund we will use in this category is the BlackRock Asset Allocation Fund, (MDLOX). The second fund is PIMCO's All Asset (PASAX).
Commodities: After further review and consideration, we are changing the product we use to implement our allocation to commodities. In the past, we have used "long only" products that track the DJAIG index - either DJP or PCRDX. However, we are now convinced that a systematic long/short approach is a more logical way to invest in commodities markets. Hence, in 2009 we will use LSC, an exchange traded note that tracks the S&P Commodity Trends Indicator Index."
Careful Anon 11:41, you're getting off your mat.
A great post today about the muni market and new pre-refunded muni fund by Tom Drake
http://twocents.blogs.com/weblog/2009/02/short-term-inco9me-funds-update.html
interesting stuff Rob, thank you
Anon 2:40
FWIW- here is a link to the AQR Funds fact sheet. Looks like an interesting absolute return product but have to look into further.
http://www.aqrfunds.com/_/docs/content/DiversifiedArbitrage2009_1_31.pdf
The WSJ recently had an article on AQR's new arbitrage fund.
http://online.wsj.com/article/SB123207546762088905.html
that was a bit too cynical, but what does that mean, careful you are getting off your mat?
Anon 8:42
It was Roger's way of saying mind your own business to someone who suggested that he was wasting his talents searching for investment themes, hot sectors, whiz bang ETFs etc. I believe he was specifically referring to Yoga practitioners who stray from their mat and invade someone else's Yoga mat. In Yoga, that apparently is a no-no. In Roger's blog, it is a no-no to suggest he is capable of much more. In a way, he is right. It is rude to insult a blog's host in that manner. It was a metaphor for proper decorum if you will. See archives from about a month ago.
Roger, what is the point of your post? You have so many qualifiers and disclaimers that it's impossible to see through the clutter. You should be more concerned about the economy than you are, or you shouldn't. The 200 DMA should matter or it shouldn't. The suggestions in your post should be considered or it shouldn't.
If you have something to say then say it (or don't). But say it with some degree of conviction for heaven's sake (or not). The only thing I'm getting is that you have little conviction about anything (or you do).
I understand Roger to say that when times are difficult, as they are now, one shouldn't trade on psychology but rather stay defensive and watch inicators like the 200 dma.
Defensive may also mean a short position on the market which I do not have. Does it make sense to hold a short fund like BEARX or one of the ETF's like SDS, DXD or similar at this time? Is there a best time to add a short depending where the market is trading?
chuck
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