10/21/2011
This weekend is rather important. If we see a bailout in Europe, then markets may get some more of a relief rally. If we don't have a bailout and the market is unconvinced of an orderly resolution to the situation , then bulls could get wrecked come Monday. Earnings have been pretty good to most companies thus far despite the obvious macroeconomic slowdown not just here in the US, but also in Asia, which is the captain of the boom boom commodity / BRICs story. This is a market with no clear trends; it is driven by difficult if not impossible to interpret events which are clearly dependent upon the often irratic decision making of the worlds' brilliant leaders.
Unlike the mid year when fundamental and technical analysis of the charts both pointed toward great likelihood of a sharp correction, I currently do not have nearly as much conviction on short-medium term views. This is one reason why I haven't sent as many updates lately - I don't want to waste my time writing or your time reading.
Right now, it's like guessing heads/tails from a coin-flip:
On one hand...We can see increasing unrest across the world (including here in the US with our occupy_insert_city movements) leading to further splintering of the braces holding together society, in addition to global slowdown caused by tightening in China and the slow motion trainwreck in Europe. This could easily break the back of the recent rebound and cause further panic in the markets.
On the other hand... I can just as easily (and perhaps slightly more so), see the precarious situation stabilizing somewhat as we get into the end of the year. Rates easing in Brazil and other countries may lead to a rebound in stocks and redirect some of the substantial money flow away of bonds. This, in conjunction with further exceptional measures measures by the fed could just be what the market needs to reflate the risk assets that have been pounded down so quickly and so much these last few months.
Those who talk to me more frequently know I have been very busy with projects... Recently I have been thinking much about investing versus trading.
Investing versus Trading
It is one thing to be able to trade the markets and make money off the local tops and bottoms of each market, it is another to be able to just hold onto a set of fundamentally sound views, ignore the short term fluctuations and know that the long term results will trump the shorter term fluctuations caused by inevitable market cycles & often irrational investor behavior. In a way, buy and hold type investing is akin to sitting down at a poker table, but only commiting to playing the best of hands that give the highest probability of winning. Upon commitment to playing a hand, one will continue to play that hand forward as long as ones original thesis remains sound, through the noise, and through the final showdown, when the strength of ones hands trumps all others sitting at the table, including those who overplayed their bluffs or who have simply miscalculated. My longer term views are taken from and consistent with that of the best investors in the world. I give much of the credit to those with decades of investment wisdom, proven by their long track record of success through different market cycles.
My views for the longer term (3-5 yrs) are unchanged:
- I still believe in the emerging markets and commodity story (especially for Agriculture).
- Is gold a bubble that is going to pop? I don't think so, at least not yet. I still believe in precious metals (particularly platinum, a very thin market which is being overlooked by a short-sighted investment community, and is now trading right around production costs and at a historically high discount to gold, which has potential to lead to a supply crunch in the future given that mining companies do not have the cash flow to increase their future production!).
- I strongly dislike developed country fiat currencies, particularly the dollar.
- I don't have to reiterate how much risk there is to bond investments in an era where paper is being trashed.
Then there is trading. Unlike investing, trading is being willing to play many more hands with small edges, and most often this does not require one to always have the strongest starting hand, but does require an understanding of others' strategy and playstyle, a willingness to adjust ones own strategy to produce the optimum counter play. Pots are often won without showdowns. Can one predict what other people are going to do based on their recent behavior and logical deduction? Can one read bluffs or bluff others sitting right across the table, while he/she is giving the stare down?
Becoming a good short term investor / trader takes precise timing, a good strategy(s) ones can believe in, and an intimate understanding of the market, the participants, and most importantly --- the ability to properly assess risk and reward. This is much easier said than done. In fact, it is extremely fken difficult to do. Most short term traders / funds fail. However, this also means the few who have figured out how to come out ahead repeatedly can often reap tremendous returns.
Those who know me for a longer period can see that my skill at trading /poker has improved much over the years. The old me who sits down at a poker table without a strategy / concept of odds, nor the discipline to fold a great hand to an even better hand... he doesn't show up as much anymore. But I'll be the first to admit that my game play is still miles away from the point where I can survive on my game play. Whether I get to that point, we shall see =). But one thing I am certain on is that just like hold'em, winning at trading is not about just being lucky.
Tonight, I am flying to China for a week. Good food, family, and stories await.
Best,
