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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: ChanceIs who wrote (214862)	8/10/2009 4:21:26 PM
From: Perspective	Read Replies (3) \| Respond to of 306849

<Let us accept tings as they are and profit off the folly of the world.> Oh man, lotsa lessons learned these past few months. While so many are screaming "manipulation", and while I'm struggling to deal with my own anger directed at the fact that the rich boys never lose, I'm taking a long, hard look in the mirror and pointing the finger right at myself. What can I learn from the experience? Clearly I knew better than to ignore so many stop-losses and continue holding so many losing positions. I also think I've learned something about the limited utility of "hedging". In the realm of "Let us accept things as they are": Rich boys will always change the rules. The banks own the government, and they will use all tools at their disposal to make someone other than them take a fall. Governments will pull out all the stops to postpone a day of reckoning. Anger about it is normal, but counterproductive to investment success. Find a market inefficiency that presents a reasonable risk/reward scenario, wait for a trend that seems to be closing the gap, and take a position, prepared to close it if anything doesn't look right. "and let us profit off the folly of the world": I don't think I could have gotten long for this rally. I don't have the mentality to be able to buy stocks that I view as poor risk/reward scenarios. Perhaps some day I could "learn" that behavior, but it would be a stretch for someone based so strongly in rational thought. I understand that technical factors produce stock moves, and in anything under a 12-month time frame, TA probably dominates in most instances. I appreciate the value of riding trends, since trends generally run much longer and farther than anyone believes possible. But my design was, and remains, to await the appearance of a price trend that coincides with my belief about the rational "fair value" for a security, and then try to surf it. I'm still trying to transition to a strategy that makes me feel like I own my money, instead of the other way around. I can't say that I'm there yet. I've been fighting a bubble the hard way for ten years now. Never in my worst nightmares did I think I'd still be forced to fight the credit bubble ten years down the road, and continue to deal with absurd risk/reward scenarios. The idea of a return to "long-term" investing is quite appealing to me, but it just doesn't work during secular bear markets. And there really isn't any way to implement a "short-and-hold" that I've found. This rally has demonstrated to me that, when there is a major turn in the markets, lenders will move against their own rational interests, and they are happy to embrace "extend and pretend". Companies in liquidity crises will suddenly find largess on the part of their creditors who now hope that the worst has passed, and they will recover their full investment. And even in cases where the companies are continuing to circle the drain, the mad rush to "buy risk" will probably jam their equity price up ten-fold, even just based on purely technical factors. Avoidance of such a scenario at all cost is imperative. One can't take the risk of being exposed to such squeezes. You can always re-enter a position later when it appears the danger has passed. The cost of a bunch of commissions is more than worth the security. Doubly so if you're coming off a decent winning streak. I'm actually not too concerned by the losses I've suffered this year. Losing a chunk of capital won't sentence me to poverty. The harder part for me is the impact it has on my perceived returns going forward. Interest rates are back to zero for anything that doesn't involve playing the "greater fool" game. And I can't stomach the idea of relying on greater fools. "Let us profit off the folly of the world". I suppose I should work on that, given that the bulk of the human population fits that bill nicely. I just have to have more faith in stop losses. However, with interest rates back to zero, the SPX back at 1000, PEs in the stratosphere, zombie institutions the new American Way, and absolutely no progress made on stagnant incomes or solving the generational flood of debt that is drowning us all, the expected returns on stocks are pretty dismal. Bernanke and Geithner snatched defeat from the jaws of victory in that regard. For now, I've retreated again, back mostly to the sidelines. Since I don't think any of the bad debt has actually been dealt with (insignificant bankruptcies or forgiveness) and I see no magic source to grow incomes going forward, it appears we've probably only made matters worse by piling a bunch of U.S. gov't debt on top of the mountain of unserviceable private sector debt. We've virtually guaranteed that long rates must now rise punitively, sealing our fate for the foreseeable future. Now, if I can only manage to absorb half this learning and commit it permanently to the gray matter, maybe I'll be able to once again call myself a skilled investor. The good news is that painful experiences are extremely powerful at latching in memories. `BC