Discover more from Thoughts from Enjoy the Ride (Tom Basso)
The Market Will Do What the Market Will Do.
Quit stressing over predictions!
I just updated my hedging chart at: https://enjoytherideworld.odoo.com/hedging for those wanting to see where I am at the moment. Pretty obvious that without looking at the chart, and knowing that I’m a long time user of trend following that the HEDGES ARE STILL ON, DIRECTION IS DOWN.
I was able to catch a little Varney while having some breakfast and something struck me. Every guest is dutifully asked, “Is it time yet to start buying?” or to slightly mix it up for the viewers, “Where are we going to see the bottom in the stock market?” Now I’m certainly not criticizing Varney or his staff, who are simply trying to ask the questions that are on many of their viewers’ minds right now. There’s lots of hand wringing, worried looks on the faces, not as much joking around and the subject gets kicked around hour by hour.
But, that’s not good trading in my view, especially for the individual smaller trader. Having spent 28 years in the money management business running Trendstat Capital and now serving as Chairman of Standpoint Asset Management, I understand that when moving a bunch of assets, you have to manage the liquidity of your positions and moving in and out frequently is nearly impossible and counterproductive.
In my present stage of life, retired and managing a relatively small portfolio compared to the hundreds of millions we moved at Trendstat or the 365 million dollars that Standpoint is currently dealing with, it is relatively easy to move quickly and efficiently in or out of any one position. I design my various trading strategies for that concept.
If a trader chooses to follow similar approaches, this downturn of the market need not be stressful. From a pure trading viewpoint, why would anyone care how far down it will go? The direction is down, you should be short or in cash and moving down buy stops to repopulate your portfolio when the market shifts to an up direction. That hasn’t happened, so you should be waiting and watching. You should be working on other long term projects. Maybe consider a short vacation. Stocks are not going to give you a buy signal tomorrow. Take a break.
When all these pundits predict that now is the time to start nibbling in cheaper, great value stocks, but then in the next breath say that prices may still be soft in the summer, they are telling you that they really don’t have any plan to deal with a bear market. They are predicting what they hope might happen, not only stressing themselves out, but feeding the stress of the TV viewers. Why not simply measure the trend and go with it? Wouldn’t that be a whole lot easier?
There’s lots of various risks to consider in trading the markets, but you can think through many of them, develop a strategy to deal with them and execute the strategy to make your trading life a lot easier. Many traders have no strategy. They make it up on the fly. They try to outguess the market. They try to predict where it will be next week, month or year. “The market is going to test the lows” or “The market has got to have a VIX over 50.” become intelligent pronouncements to viewers that don’t even know what VIX is and why it might be important. When things don’t turn out the way they’d hoped for, there’s the angst of being wrong and the stress of seeing the equity in the account draining away.
So far, I’ve run my 9 strategies each afternoon moved down my buy stops. I’m running 5% invested in the sector timing strategy, hedged with ES futures, short the NQ market, short the crypto futures and trading in both directions with the futures I have in the portfolio. I’m down slightly off the highs in equity, but fairly close to new equity highs with little stress involved. I made a plan to deal with risks that I knew existed and I executed that plan to the best of my ability.
The market will do what the market will do! While you have the extra time to watch the market melt down, think through your long term approaches to attacking risk and develop simple ways to deal with it. And while you’re doing that, enjoy the ride!