I have always loved Boston. My first recollection of the city was when my parents and I used to fly into it spend a night, or two, and then head for our house in Nantucket. Boy, I wish I still had that house. In later life we use to visit the city to see portfolio managers with Fidelity of particular interest.
Psychology is the reason most investors fail to keep up with the markets, and why contrarian strategies have turned in consistently superior performance over time. This same inability to understand psychology is often why academics don’t incorporate its use and instead stay with what may be flawed modern portfolio theory.
Acknowledging that losses are part of business is one thing; taking and accepting those losses in the markets is something else entirely.
One Way Pockets
Recently, the markets have been gyrating in a narrow range. Again, according to the book One Way Pockets.
Our work suggests there is still a chance for the S&P 500 (SPX/2992.07) to trade out to new all-time highs (ATHs). However, the first part of October is showing up as problematic on a trading basis and potentially before then. Well, “potentially before then” began yesterday with the revelation that Speaker Nancy Pelosi was proceeding with a formal impeachment inquiry against President Trump.
Rich Man, Poor Man
Emotions run rampant before the uncertainty of floating, fluctuating, often violent and volatile markets. Constantly discounting prices are fickle and full of surprises. Disorder is usually the norm.
Frederic ‘Shad’ Rowe
I have been reading Shad Rowe’s prose since the 1970s when he wrote a column for Forbes’s magazine. More recently Shad and I met in his Dallas office to discuss the markets, stocks and his investment style. That was about six or seven years ago.
Zebras have the same problem as institutional portfolio managers. First, both seek profits. For portfolio managers, above average performance; for zebras, fresh grass. Secondly, both dislike risk. Portfolio managers can get fired; zebras can get eaten by lions. Third, both move in herds.
The fact that the equity markets are rallying in the face of this week’s negative “energy blast” is highly bullish.
Desperately Seeking Savings
Desperately Seeking Susan is a 1985 American comedy-drama film. We recalled the movie, and its title, while talking to a 70-year-old contemporary who told us that in this low interest rate environment he is, “Desperately seeking savings.”
Never Say Never
We were surprised by last Friday’s stock market action. Of course, we did not anticipate the escalation of tariffs, or the Tweet Triage. Friday’s plunge was the forth test of the August lows between 2822 and 2835. To us this looks like a search for a bottom, yet Friday’s drop is a bit concerning.
Last week on CNBC I stated that maybe what we have is a new toolbox; but nobody knows what new tool to use for analyzing the economy, stock market, bond market, etc. Our friend, CNBC’s uber-smart Steve Liesman, hinted at this point in our interview, but I do not think many folks picked up on it, and it is a very important point.
What I really think has happened is that given the years of quantitative easing, exceptionally low interest rates, low inflation, etc. what we have is a new “toolbox” and we do not know what “tools” to use in quantifying the current economic, bond market, and stock market environments.
Investment versus Speculation
Chapter 1 in the seminal book “The Intelligent Investor” by Benjamin Graham is titled “Investment versus Speculation"