As for the stated intent of your letter, to share insight amongst friends who may find them helpful. What good is it to continuously have positive reinforcement from the same subset? One of the best ways to improve is to receive constructive criticism. If I wanted people to slap me on the back, I would post on some daytrader thread. Instead, I reside on the CFZ because I am philosophically aligned with most. As such, I constantly and deliberately expose myself to criticism for my trading, particularly when I go long. This is purposeful because I want to learn and improve.
My apologies, Sun. Your criticism is excellent. You are right; this is not a support group, it's a trading thread. I owe you gratitude, not the retort that I sent before. Please, please, PLEASE: continue to be critical - that is far more valuable than comraderie. I value CFZ because it is one of the few sources of independent thought on the markets.
I simply do not understand an 'investment' strategy based on shorting, precious metals and currency swaps. I also have a great deal of respect for Warren Buffet and consume every word as it relates to the master. I have never seen Buffet play these type of games with his investment portfolio. Buffett owns the likes of AXP, KO, G, WFC, WPO and HRB. He doesn't own gold, yen, euros, foreign bonds and is not short stock. You state that Buffet's success doesn't rely on strategies that I employ. Does his success reside in strategies that you employ?
You're right - Buffet probably doesn't sell short. But what is wrong with holding gold mining stocks and shorting as a secular bear market investing strategy? I've never understood the common aversion to shorting, and why it's considered so "risky". It's just the inverse of going long. What's the difference between
a) finding Company X at a good value in the depths of a bear market, buying and holding until it's quintupled, and selling when it is overvalued
-and-
b) finding Company Y after it's quintupled, at the end of a bull market, shorting and holding until it's returned to reasonable valuation, and covering?
There are a few mechanical differences, but ultimately they are just mirror images of one another. One you do in a secular bull, the other you do in a secular bear.
I would imagine Buffet would buy a gold mining company if it represented value, and I imagine he is concerned about holding things denominated in a currency that is being debauched daily by our Fed. Who said anything about currency swaps? I'm looking for an international bond fund that buys government bonds yielding around 5-7% (ie not Japanese bonds) that isn't hedging currency risk. I *want* to hold foreign currency because of the dollar risk.
No, Buffet doesn't employ my trading strategies, but he certainly approaches investing dogmatically: he only buys value. Even traders have a dogma, but they would probably call it entry criteria. Buffet looks for a company with unlocked value that he thinks he can release over a period of a few years; a trader sees it in a chart pattern, ie trendline breach, that he thinks makes the stock likely to fall in price in the next few days or weeks, and establishes a position. They are not that different. Or perhaps I misunderstand your comment about being dogmatic.
I am not inflexible in opinion, but I find it impractical to shift a portfolio around in any substantial fashion on a day-to-day basis. And if I don't have some basic investing principles, I find it easy to forget what the whole point is. I am most comfortable buying growth at a reasonable price, and waiting for the company to grow. That's all I ever really wanted out of the market. However, the end of the secular bull has forced me to learn short-selling. I have no real interest in day-trading, but my "year-trading" seems to forgo a great deal of intermediate gains when, through simply closing some winners more quickly, I might capture more gains with less exposure and stress. What I seek is to become a successful "month-trader", modulating my portfolio exposure by 20-40% from month to month based on intermediate trends. I thought the January high was it for this bear market rally, so I re-established my positions. Now I am stepping back because that assumption was proven wrong by the market. I don't believe in this rally, and won't buy into it. I have no interest in it. I will await the next turning point that I think offers reasonable risk/reward, synchronizing the intermediate trend (where we are going to be in 20 trading days) with the long term trend (where we are going in 200 trading days), and try again. By my own definition, perhaps this bear market rally off the September lows was one I wanted to capture. However, I just didn't find anything that I felt time would ultimately bail me out on if I were wrong. Time remains the enemy of the bull here.
I will say that I am in the midst of a great deal of soul searching right now, and it extends well beyond the market realm. As part of that, I'm trying to nail down the role that my market activities should play in my life. Should I be a trader or an investor? I believe the only real difference is time scale. There are no true "buy and holds" - why would you buy it if you didn't plan to sell it at some point in time? Therefore, everything is bought to be sold. You develop a thesis, ie Company X represents value because of Y, wait for an appropriate entry, monitor the status of the thesis, and if the value is realized, you exit the position. The distinction between investor and trader is probably only the time scales and thesis involved. At first I wanted to be a trader, but I think it requires a substantial time commitment. I wonder if the return on invested time is worthwhile. The market will probably permit a good investor to earn around 10% per year without a whole lot of time consumed. How much more does a good trader make? Is it worth the additional time? Before I suspected it was not; these days I'm starting to believe it might actually be worth it.
Even Buffet knows that the default move for the capital markets is up. Long term investment strategies that are based solely on bear market tactics will not make money...emphasis on long-term
I disagree with the common notion that markets predominantly go up. My observation would be that they spend roughly equal time going up vs. down, usually in rough 40-year cycles, but they go up more in the up phases than they go down in the down phases.
That, I think, is one of the core philosophies or dogmas uniting the CFZ - that this is not a cyclical bear in the context of an ongoing bull, but rather a secular bear, wherein the cyclical bears are longer in time and price than the cyclical bulls. As a result, for the next several years at least, the "default move" may not in fact be up.
BC |
