Sunday, June 12, 2022
Dearest fellow Financial Farmers, why do we suffer fools? Investors for too long have been held hostage to economic imbeciles. Why are we gluttons for punishment? If every piece of economic data indicates that the market is POOP, why NOT short it?
Frequent readers of this amazing blog know that this author is a big fan of "Reminiscences of a Stock Operator" by Edwin Lefevre detailing the life of Jesse Livermore. It reads like an acquired taste, in that fine champagne is an acquired taste. I consider it Gospel for trading. With that said, one of my favorite lines in the book details Livermore's thoughts on selling: "If a stock is good enough to sell, it is good enough to sell short."
Here at ILAF we have an open mind, but it closes like a steel trap when we lose money! The past 7 months have been a painful reminder of what happens when "leadership" runs amok and there is no strategy in place. Chaos ensues. Why as an investor should you be punished for this? Well because you believe in long-term growth and that the economy will "eventually recover," right?
Recovery often takes longer than we realize, with the Bear Markets often lasting years. In times of listless trading, near-term assets are whipsawed back and forth until investors are green with nausea, not envy. So with that said, there are several options for investors who have little to no confidence in the current market.
First, there is always "do nothing." This involves keeping your current portfolio as is. You're indifferent to near-term volatility and think in decades. Second, there is Dollar Cost Average your existing portfolio during the sell-off with the hope of increasing your positions. Over long periods of time this has generally worked. Third, there is the safety run idea of going all cash until the market subsides and there is some light at the end of the tunnel. The average bear market lasts about 300 days. So cozy up to a umbrella cocktail for about 10 months. A fourth option to consider would be profiting from the downturn. There are several ways to accomplish this, some act more as buffers while others seek Absolute Alpha.
Consider your time horizon and goals, but also your risk tolerance. As Zero Hedge aptly says, "In the long run we're all dead." So for some doing nothing works, others prefer a cocktail on the beach, and a few investors will try to profit from chaos. Socrates put it best: "Know thyself."