John, this has been my best year of investing. If my learning curve could equate to a stocks performance, or a mutual fund's performance, I would have outperformed the OSX, the HUI and the SOX combined. I would have also outperformed USPIX which was up over 300% at one time this year.
My best pick of the year was USPIX, by far. Assuming the economy was going to do poorly, assuming the markets were going to under-perform and assuming that shorting the market was the way to go, I also assumed that shorting the NASDAQ would be a better risk to reward setting than shorting a number of different stocks. The best way to do this was with a mutual fund that benefited from a major market decline and would do it by better than a 2-1 margin. USPIX was that pick.
It's hard to remember what my worst pick was but I think I'd have to say AFFX. I tried to catch a bounce on this one, (I didn't consult my charts), and it hit me for a double digit loss, in the teens, before I sold it. If I held on, and if I had more confidence in the charts at that time, I could have enjoyed the ride that followed for nearly a 200% gain. I've had a few other losses, but this one sticks out the most because of the timing.
The lesson I learned there was twofold; TRADE WHAT YOU SEE, NOT WHAT YOU THINK.
Thinking involves forming an opinion. Forming an opinion attaches itself to the ego. The ego doesn't like being corrected and as such, it instinctively causes us to defend that opinion, oftentimes even when we're wrong. Being wrong can make the difference from having a record year, to a year where we're grateful to break even or outperform the under-performing indexes.
A couple of weeks ago, Investors Business Daily showed some charts taken at a certain point in time, but they didn't tell you when that time was, or who the company was. You were supposed to study the chart and make a decision; is it a buy, sell or avoid. I was surprised to find that I made the right decisions. When I found out who the companies were, after the decision had been made, I came to the sudden realization that I would have developed a severe case of fundamental bias if I knew the company and its sector.
FUNDAMENTAL BIAS! It's the nemesis that prevents most people from truly becoming successful in the market, in my opinion. Fundamental bias forms like a prejudice and places many limitations on us, limitations that well; limit our successes.
As a young man, I was taught that what the mind of man can conceive and believe, the mind of man can achieve.
However, too often we are quick to place limitations upon our minds. Our friends place limitations upon us and our family members place limitations upon us. Often those limitations are placed to keep us from hurting ourselves. The worst limitations, in my opinion, are the ones we place on ourselves.
The greatest lesson I learned in 2001 was to lift those limitations, to do away with them. Limitations close the mind. A closed mind results in poor decision making and poor decision making results in poor results.
Wall Street has conditioned our thinking to the level that most of us think the best way to make money is to form a good fundamental basis and wait for the stock to catch up to those fundamentals.
I've spent most of my adult life in sales and I can tell you that people like to be sold and people like a good story. Thus, fundamental analysis was born. I'm not saying it doesn't work, I think there are things that work better.
Your broker can't call you following the September 11 attack and say, the NASDAQ formed a hollow red candle today, at the bottom of a trend. Now's the time to invest. Most people aren't going to accept that because of the limitations they've placed on their mind. Instead the analysts had to create a story, a story that a gullible public would gladly accept. Thus PATRIOTISM was re-created. The general public liked the story, it stopped them from further selling and allowed the money makers to take back control of the market.
The contrarian view was to buy the NASDAQ on that hollow red candle. Financial Times went on to report that the following seven weeks were the best performing time frame in over 20 years.
I've been conducting experiments outside the public view of this thread. Those experiments have consisted of doing nothing other than studying the charts. Jim P had mentioned FLE in one of his private messages. Well, he didn't actually mention it, he mentioned BZH, LEN TOL and others, but he had FLE's chart included with the others. I noticed the chart was under-performing the others. I also noticed that FLE had formed a hollow red candle, at the bottom of a trend. I mentioned at that time that FLE would make a good long. I also mentioned it to Kodiak. (I hope he doesn't mind me posting this message.)
The stock jumped 40% in two weeks.
messages.yahoo.com
Earlier this week, I picked a company that was under-performing, one that most people wouldn't purchase at this time and one that most people would put off to much later. I did share that pick with Kodiak but I told him it would be an experiment. I explained that the technical indicators were showing that this fundamentally challenged stock was flashing a buy signal for a technical move. I explained that fundamental bias would prevent most people from buying this stock. I won't mention that stock at this time because I own it and this isn't about picking stocks, it's about learning what goes on behind the pick.
That technical pick was up over 25% this week.
I'm still learning how to limit the fundamental bias that has been ingrained into my mind. Overcoming fundamental bias doesn't mean you fly off the handle and buy ENE or GX, but it does mean opening your mind to recognize that even fundamentally challenged companies have to make a move before they become good companies and the price is already reflected in the stock by the time the company is recognized as being a good one. Some of the best returns are made during and following these base building times.
I also learned that the greatest returns are earned during times of chaos. Chaos for a company, chaos for a sector, or chaos for the markets. It's about keeping an open mind. It's about not placing limitations on ourselves. I still have a lot to learn but this has been one of my most exciting years as an investor and I eagerly await the new one.
dabum |
