This morning’s post discussing Floyd Norris front page NYT column generated even more pushback than I expected. I am always trying to create rules to help make better investment decisions and fight against my own wetware.
The earlier comment stream led me to these ten ideas; ignore them at your own risk:
"¢ Whether a premise is fundamentally true or false is irrelevant as to whether it is actionable. If enough fools believe something is so, it will impact the markets.
"¢ Always be conscious of the cognizant biases and selective perceptions you bring to investing. Recognize the same bias in the crowd, the media, and Wall Street. Avoid the herding effect.
"¢ After a a 55% market sell off, most of the terrible structural news that existed before the collapse is reflected in prices. (Let it go).
"¢ You must acknowledge when the data gets stronger or weaker, regardless of your current market posture. Be skeptical, but not rigid.
"¢ Variant perception is a rarity; Identifying the moment when the crowd figures out they are wrong is rarer still.
"¢ Market Pros simply cannot afford to sit out a 75% rally; Individuals that miss that sort of move should reconsider their investment strategies immediately.
"¢ Every thing cycles: Recessions turn into recoveries; bull markets give rise to bear markets. Every rally that there ever was or there ever will be eventually ends. Adapt to this truism or lose all of your money.
"¢ One of the hardest things to do in investing is to reverse your thinking. It is even more difficult to do after a certain approach has been successful for long time. The longer the period of successful thinking, the more importnat the reversal will be.
"¢ Cheap markets can get cheaper; Expensive markets can get dearer.
"¢ The markets frequently diverge from the macro economic environment. This can be both long lasting and maddening; Your job is to be aware of how wide the gap between the two is.
For those of you fighting the tape, the data and the mere idea of a recovery, ignore the above at your own risk . . .
Barry,
I admire your desire to be and success in being practical.
But some quotes need some more comments, e.g.
“After a a 55% market sell off, most of the terrible structural news that existed before the collapse is reflected in prices. (Let it go).” -> Well, I have noticed some markets historically that dropped 75%+ after credit busts / major busts… (maybe not immediately though)
“Market Pros simply cannot afford to sit out a 75% rally; Individuals that miss that sort of move should reconsider their investment strategies immediately” -> This rally has been too quick to be able to consider anything meaningful before it went too far. Do you suggest one chases it further? Is it party like it is 1999? What exactly is your better “investment strategy”?
“The markets frequently diverge from the macro economic environment. This can be both long lasting and maddening; Your job is to be aware of how wide the gap between the two is” -> And do what with that knowledge? Hope to exit before anyone else?
please rebutt .. theres a David Gilmour song with the line “theres no way out of here when you come in your in for good” .. seems that is a pysc in play .. and with the ceo pay thing & boards that choose whether to pay dividends or not .. wash rinse repeat / please rebutt …. love the pipes / don’t abuse them
Thanks, Barry. Some very useful wisdom in that list. Wish I had those items in mind over the last year.
I’m pretty disappointed in myself for being so stubborn. But it seems like such a fine line between being open-minded and being too quick to second-guess/too easily swayed. I struggle with that.
On the bright side, I make it a point to not have to re-learn painful lessons.
Barry, I have made a lot of money (by my standards) over the last two years by listening to you. You give the best advice available for people that want to make money in stocks, both for the long term and the short term. Unfortunately, the blog has gradually become a hang out for losers who constantly paint a negative picture of the economy, of the world , and of the future of America (If I read one more jerk spouting off about the end of the American empire and comparing our demise to the end of Rome I am going to puke). Most likely these posters have crappy personal lives, or a failed business, or some other problem and want everyone else to share their misery. Not sure what you can do this about this, but you used to get more balanced comments posted. Nevertheless, I plan to stay long stocks as long as you are long.
Peter,
Thanks for the kind words
PS: I’m a big fan of your video work.
Great list, Barry. Keep on keepin’ on……..
Barry, I think you got a lot of pushback because of the now almost cliche disconnect between Main and Wall streets. So, a few trillion dollars here and in China generated a few positive months and some of those whose 401k’s are zooming back feel rich again and are spending a few bucks. But, that doesn’t remove skepticism about a real recovery. At some point the Fed cannot continue zero rates and the deficit has to be dealt with. It will come home to roost. You also have the property bubbles in China, Australian and Canada that will deflate at some point. We have to accept that we are not the big bopper any more what happens in these other places has a big effect.
That said, I’m sure the prop desks, with free money from Ben, can drive the market higher and maybe suck in some late comers, as they did in 2007. Since you’re already in, there’s no sense in bailing.
I think the conclusion of Edward Harrison’s post about the Greek situation this morning captured the mood of most here. http://www.creditwritedowns.com/2010/04/fitch-downgrades-greece-to-bbb-with-a-negative-outlook.html
To posit as a principle that no “market pro,” can afford to sit out a 75% rally is ridiculous. It’s the same kind of argument that realtors were making in 2006 in Sacramento. “If you don’t get on the elevator you’ll be left behind.” It was true for ten minutes, then it wasn’t anymore.
If you have cash flow, savings, and a safe place to live you can afford to sit out any rally. The most dangerous sentiment to indulge is the the anxiety that everyone else is making easy money and you’re being left behind. That’s the latecomer’s mind. When those folks capitulate and get on the bull train, it’s ready for a reversal.
Barry, why do you assume that people that are criticizing your previous retail blog are as you said “fighting the tape”?. Mish went bullish at the same time as you did (more or less) but he still drills on the data to find out what is what. The criticism is not if you are bullish or bearish the criticism is that you no longer seem to be objective about the underlying numbers. Don’t get me wrong anyone can still be long the market even after looking at the data under the hood…
I thought the tax revenue data out of California was compellingly good news. But angry people tend to congregate on blogs and feed on each other’s bile. When anger has blinded them, and there is no rational discussion possible.
To me the question is not if there is a recovery, but if it is sustainable. By Q4, will the benefits of government stimulus (fiscal and Fed buying) have peaked? Regardless, cheap money and increasing aggregate demand look assured for quarter or two.
Most importantly, it is a beautiful day outside. I’m outta here.
Barry,
With all due respect to your profession, the reckless gung-ho momentum swing trading that is willfully ignorant of fundamentals PREYS on wetware weaknesses. This immense rally is *morally* disgusting.
Once again, worthless stocks are pumped to the moon. Once again leverage is abused.
Having met my fair share of Wall St. types (and again no disrespect to you for generously providing your thoughts and this forum over the years), most are shameless in their pursuits. In well refereed endeavors, this is admirable.
Our investing environment now is anything but well refereed. Taxpayers, savers and the prudent are getting openly robbed.
Is it any surprise that bonuses are back, but jobs aren’t?
[...] Ten investing rules from Barry Ritholtz. (Big Picture) [...]
I guess Muriel Siebert must have a failed business or miserable personl life: http://www.cnbc.com/id/36315756
Barry, I agree with a lot of what you say, but the time horizon for many of us is different:
- some of us still remember that the Nikkei was was over 40K about 25 yrs ago. Didn’t tulips go for a hell of a lot more a couple of hundred years ago? - the word “investment” used to mean something you hold for at least 5yrs. - I haven’t figured out how to analyze the current market in the context of all the money being provided by the Fed. Until I feel more comfortable with that I am not putting new money in. - I have a life so I don’t want to have a market ticker in front of my face most of my waking hours.
etc.
I find it entertaining that you are waxing eloquent as you ride the crest of the wave up.
Isn’t this how all the bubbles are supposed to work? First prove the bears wrong and you right, beat them into submission. And then take their money from them.
Wasn’t I “waxing eloquent” as I rode the crest down the from 12/07 – 3/10 ?
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