I must thank Charles Kirk of KirkReport.com. Last Friday’s Q&A was massively popular and resonated with many, many readers. It was a gift to have the opportunity to speak with everyone that responded. Several professional traders were in touch and we agreed on one thing: years and years of making decision after decision on a discretionary basis is draining.
Professional fund managment is a lot like Hollywood: you’re only as good as your last movie. Professional stock market gurudom is a bit different: the newsletter writer can distract subscribers with a plethora of side plots and conspiracies during the long wait for The Day of Reckoning. Or simply revise history at one’s convenience.
It dawned on me that, just like there is an Investor Sentiment Cycle, there might also be an Advisor Career Cycle that can be divided into phases. After two decades of watching people in the investment industry, it seems clear to me now that there are indeed four seasons.
Spring: Hope and Vigor
A young manager starts out fearless, full of hope. Sometime during the first decade, the challenges become obvious.
Summer: Hot and Sluggish
Fifteen years into my career, I started to experience burnout from having to make so many decisions. I overcame it by encoding my knowledge, building decision support tools to help haul the load. Letting the computer calculate my stops and position size took a huge amount of decision making off the table. This is the part that everyone I spoke to agreed upon.
Fall: Falling Leaves and Darker Skies
Not everyone is lucky enough to recognize the problem. Many are in no position to do anything about it. Perhaps that is why stars that shine brightly eventually vanish from the evening skies. Think about it: Joe Granville, Robert Prechter, and many of the gurus of yesteryear have all been relegated to history. Maybe there is a stockmarket version of PTSD. Or perhaps many people never possessed the personal qualities necessary to endure vicissitudes.
Studies of those exposed to a range of manmade and natural events have consistently found that factors before the event account for more of the variance in symptoms of the disorder than do characteristics of the event. These factors include having the tendency to respond to life experiences with negative emotions (trait neuroticism); believing that one is helpless in the face of events; using an emotion focused coping style (“how am I feeling?”) rather than a problem focused coping style (“what do I need to do?”); having a history of psychiatric disorder; and on whether social support is available, whether religious or political commitment is present, and the person’s level of intelligence. — BMJ 2001;322:95-98
There can be no argument that the market delivers big and unexpected blows on a regular basis. It’s nothing like war, but for most, it’s about as close to getting killed as they’ll ever get. Just being a participant is enough to break many; they develop a perpetual bunker mentality that borders on paranoia.
Below, I quote from a popular blog written by someone I consider a friend. Reading it is very difficult for me, knowing what might have been…
March 17, 2008
I anticipate the next level down in the DJIA will be 11,200, and that will be the second last plunge in prices. The final one to come sometime later in the year will result in the ultimate panic to a Dow spike bottom of about 10,000. That cleansing process of the sellers will be your opportunity to buy the cycle bottom.
Now is the time to start focusing on where you intend to place your assets at the appropriate time. Where today you should be at a 90-95% cash holding level, at what is likely to be the final blow-off of markets you ought to go 90-95% long securities.
March 23, 2008
A few hours after I finished writing perhaps my most negative Week In Review yet, last week, the credit ring broke as Wall Street’s fifth largest investment bank could not meet its obligations to other bankers. A couple hours later, the Bull run for commodity prices snapped. I received many letters from all over the world thanking me for having pushed you into cash.
March 28, 2008
I have said it before; the banks are toast. There will be many investment and commercial banks that will be eaten up this year, including some very large ones.
Its time to consider putting your liquid assets into a private bank, preferably offshore in a place like Switzerland, and I’ll help you do that if you qualify. Contact me in confidence at XXXXXXXX.
Once there in a safe bank, I would sit in cash at the 3-month Libor Interbank USD deposit rate, or temporarily in an offshore forex trading fund, and wait for the inevitable crash in commodity contracts as and when the next Bear Stearns bites the dust. There will be at least one, perhaps several. Commodity prices collapse when counter-parties fail to pay.
And when the damage is extreme – the blood running down Wall Street following margin calls – switch the cash to a combination of precious metals bullion and the shares of superior unhedged junior precious metals developers. The larger ones are held by some hedge funds that will also bite the dust this year.
April 14, 2008
Every day, I receive letters of thanks for encouraging you to move into cash, like T-Bills or put writes in shares of companies you want to accumulate at stink bid prices. If your cash position is huge, you ought to consider having a trading professional manage that cash because the forex market is volatile. In the XXX yesterday, I recommended a Forex Fund for accredited investors that I am affiliated with.
May 2, 2008
Having been closed for the Labour Day holiday for much of the world, obviously those markets had to catch up this morning to yesterday’s rally in New York, which started late in the afternoon the day before, and they did. So, in true idiotic fashion, media headlines screamed, “Global rally underway”. . . The US Jobs Report will be spun like a magician levitating the dead. I think I’ll go back to bed.
May 4, 2008
You may think this is a capitulation of sorts on my part, but it is not. A trader’s level of concern may rise and fall, but that may not be a sufficient call to action. You see, we must trade prices, even when bankers manufacture them and manipulate them, and render them temporarily useless as a measure of economic value. . . . The fact is that a price of a blue chip stock can be financially engineered just the same as a crooked stock promoter can do for a penny stock.
The mind starts to play tricks. In the end, you wonder if you know anything at all.
- Russell now says bull market that began in early 1980s still alive
Believe it or not, those announcements in effect were made earlier this week by Richard Russell, editor of the Dow Theory Letters newsletter. He says he now believes the stock market has been in a primary bull market since the early 1980s. The lows of October 2002 and January 2008 therefore represent nothing more than “important secondary or cyclical correction-bottoms.” As if he wanted to make sure there was no misunderstanding, Russell headlined his Web posting Monday night: “A Shocking Revelation: The Bull Never Left.”
- Richard Russell says we’ve seen this market’s bottom
By an heroic effort, I haven’t mentioned Dow Theory Letters’ endlessly inventive Richard Russell for at least a month. In the meantime, the octogenarian superbear has suddenly announced that he’s rethought the last 25 years of market history and has decided that we’ve been in a primary bull all along.
Some Things Never Change
The vendors just continue on and on and on, selling lemons.
- Investools shares plunge on SEC inquiry, earnings miss
Investools Inc. swung to a first-quarter profit, but its shares plunged Friday after the brokerage and purveyor of financial education products disclosed that securities regulators are looking into some of its business practices. . . . Investools said it cannot predict the outcome or any impact that may have on its business.
- Investools Hit By Double Whammy (SWIM)
“The Company is cooperating with a non-public, informal inquiry by the SEC relating to representations by certain presenters in certain portions of their presentations at some of the Company’s seminars. The Company has been cooperating with and intends to continue to cooperate with the SEC. Because it is ongoing, the Company cannot predict the outcome of this informal inquiry at this time, and, as a result, no conclusion can be reached as to what impact, if any, this inquiry may have on the Company or its operations.“