During the bubble years, somebody calculated that 80% of the market gains were coming from just 6 stocks (and I think 60% of the gains was coming from only 4 and Cisco was one of the 4).
What is special about you is not that you recognized how out of whack the market was, but that you had the discipline to stay away from Cisco. By the time 2000 had arrived, even many of the old timer pros who should have known better had accepted that it was a different era. Hell, even CNBC that used to mock stock rises based on splits began to listen to research papers that showed stock splits do actually cause a price rise because in this market the individual traders have a say...what a silly notion!!
In early '98 I took the market pulse and saw that 35% of stocks were 2 standard deviations above their 200 day MA. To put this in perspective, this number should be around 4% and previously, anytime it had gone above 20% we'd had a correction. The insanity was beyond belief. So I closed most of my positions. Sure enough we had a fair correction and I rebuilt some positions, but did not feel comfortable with the market. So by the summer of '99 I was completely out of the market and took a few months to travel. I had expected the market to be flat to down while I am away, but when came back, the market had gone up 80+% in 3 months!! First I was shocked. I mean I literally spent a week going over daily and weekly market action to see how this had happened. I was upset that I had missed on so much. But then I knew it was time to go short.
I am making it sound easy but '97 to 2002 were very difficult years. The market would test your sanity day in and day out and when things turned your way it was just too choppy to make a decent trade of things. Nor was it easy to keep long term positions according to your convictions. You needed a ton of psychological strength with solid investing/trading skills to go with it.
The thing to keep in mind, is that individual trading is very much like playing black jack. If you are a good black jack player, you know that you will ride a lousy buck up and down all night long with little to show for it. But you use your time at the table to count cards and wait for a rare opportunity (like when all the low card are gone, the dealer has a 6, and you get a pair of 8's that you split). From what I have read, this is also true for most large fund managers. Most of their gains comes from only a few positions. The rest are just there to keep them alive.
later,
ST |
