Saturday, April 11, 2009

“This is not a *** game” – this is life savings at stakes

Below in italics is an email I received from one of the readers of my blog…one of the many similar emails I keep getting during these difficult times. Read it, feel it and if it feels like YOUR feelings as of late then continue reading my reply…well, not reply…my thoughts – after all this blog is my “trading journal”, my “diary”, it started as my self help for my own active trading and somehow it became a very important part of my life.

David, I really like reading your blog, I have been unable to read or to trade lately (other commitments) and that is a shame because the market is starting to behave better for longs, and I am struggling with learning to short.  mental thing.  I used to do the CANSLIM method  and that worked well for a while, but I have faltered and am looking to do something simpler, longer term.
Your example port is up in a big way, because you had the kahunas to jump in at the first sign of a turn.  I am not in, thinking of jumping in soon maybe 25 or 30 % into spy, qqqq, iwm, fxi and ewz.  then adding as market goes up and stopping out at 5% if need be, fear is whipsaws at this level.  thoughts?


This is an email from smart, diligent, hardworking person, someone who does not want to get rich quick, but understands that money under the mattress tend to lose value and needs to be put to work. …and that someone was long biased for the most part of her “investment life”.

No blame here, it is so natural for people to try to be optimistic, especially after they learn as time goes by that life “aint fair” and your only friend is yourself.

Propaganda machine (some call it mass media, I, as someone who was born in USSR and learned that anything they say on TV or meetings is one huge lie, I still call it PROPAGANDA – that IS what it is) kept telling us for ages that we live in the best country in the world, that country cares about its citizens in the good times and suffers with its citizens in the bad time….and we have learned that our money and opportunities were wasted in the good times and we have to save the country at our expense in the bad times.

They kept telling us that Americans are the most courageous and honest people in entire Earth, that we are heard, that “customer feedback is very important” – and we learned that we will be fired for criticizing company’s policies and denied unemployment benefits on the lame pretense of misusing company’s email and that for customer it is always less expensive and less time consuming to bend over and take it instead of trying to fight sellers of defective products even if “luck” is on the customer’s side and lemon law exists in home state.

They were telling us that the only thing we need to succeed in our lives was “Can Do” attitude and we have learned that the attitude we really need is to be able to use elbows to move competitors aside and strong legs to go up over  the fallen bodies…and God forbid to forget to wear blinders – we might unintentionally pay attention to other people’s problems…

We were taught to put faith in our government and we learned to play “find one smart seemingly honest person” during televised Congress meeting – and we happy to see Ron Paul and “they” were happy that we did not pay attention to other 499 challenged in any possible way eternal taxpayers’ dependants.

And finally getting back to the market – they were telling us that the only right thing to do is to set it and forget it with the stock market – they needed our money in order to grow and pay bigger bonuses, to charge higher fees for dart throwing mutual funds management – they knew they did not want any “pay for performance/pay back for losing” compensation system.

Blodget said “Internet stocks will go up forever” – he even wrote a book in jail about it.

Buffet said – buy American NOW, you have 9 lives just like smiling vultures do – you don’t need money now.

Soros / Rogers /Mauldin were blamed for been overly pessimistic for the last 30 years – from the early days of global fraud – none liked that they saw it and were trying to tell to hard working citizens that money is not safe – and guess what – in spite of the fact that they were years early – IF we listened to them we would still come ahead in the game, years ahead – market is at 1966 level adjusted for inflation.

What can I say, what can I answer to similar emails? I wish I HAD an answer, but I only have an opinion, opinion that this is the biggest EVER challenge America and most of the Western world has ever faced and even if we’ll be incredible lucky and will come out of it 10 years later – world will never be the same we knew before.

This IS a bear market, it started back in 2000, never ended and will not end for the years to come, last S&P500 high was way lower then prior in 2000 – never forget inflation, never…

It is hard to play this game, and it does not matter now – long or short, rules keep changing in the middle of the game, even for full time traders this is getting more and more challenging day after day.

I know this rally is NOT sustainable due to a multitude of the reasons (subject for yet another post), but market will go higher than we think it will, and market will go lower than we hope it would…but it always catching up with reality. If I was not long in my IRAs accounts I would be very hesitant to open any new long positions at this moment (as a matter of fact – I was selling my long positions during last week, about 30% of portfolio) – except – if I’d do it “Author of email” way – probing, taking my chances, 10/15% of portfolio at a time, adding after meaningful advance, tightening the stops, watching it…watching …no setting and forgetting, no “IFs”. It takes guts to step in and buy during the plague (hold on, hold on – you still need to understand WHY I jumped in in the beginning of March 2009 and do not overlook the fact that first time back in mid April I had to liquidate entire portfolio at over 6% total loss), but in my opinion it takes a lot more guts to jump into the moving train – it might stop in 2 minutes at the train station, you might get hurt while catching it or it might just derail with you on board…or it might go on (that I do NOT believe at the moment)

Good luck Elaine!

P.S. PLEASE – read “Practical Speculations” – that book might change the way you look at the markets.