Interesting blog post talking about the 180 rule:
Essentially he advocates taking a serious look at shorting a stock that you own but want to sell, and going long a stock you were short but now want to cover.
He makes some good points like the value in re-evaluating the reasons why you are buying/selling and how the 180 rule can force that discipline upon you.
Thursday, January 23, 2014
Wednesday, January 22, 2014
A Phenomena
There is a phenomena I have seen over and over again. It usually manifests itself as follows:
Company appears to be doing well via the numbers. Sales are growing, margins are expanding and the multiple is huge (too expensive for me). BUT...
I can't work out why the company is doing as well as it is. THEN...
It disappoints the street and the multiple shrinks enormously even as profits are substantial and it seems to the company is doing a lot more things right.
Case in point today is Coach (COH) which reported another disappointing quarter and is in Wall Street's doghouse.
The same could also be said for Apple.
Company appears to be doing well via the numbers. Sales are growing, margins are expanding and the multiple is huge (too expensive for me). BUT...
I can't work out why the company is doing as well as it is. THEN...
It disappoints the street and the multiple shrinks enormously even as profits are substantial and it seems to the company is doing a lot more things right.
Case in point today is Coach (COH) which reported another disappointing quarter and is in Wall Street's doghouse.
The same could also be said for Apple.
Friday, January 17, 2014
Inequality and Political Change
Research Affiliates posted an interesting article today titled, "The Profits Bubble. "
The gist was that outsized profits are controlled (or allowed) by government and when they get too big (there is a trade-off between profits and income), the resulting growing inequality leads to social unrest and political change. The article correctly argues that profits cannot grow at a faster rate than the economy for too long and established that they have been growing at a faster pace than the economy for the last 20-30 years.
I think this idea/notion is correct. The problem is one of timing. It is very hard to know when or what the last straw will be that has been added to the camel's back. Changing societal/cultural norms and rising living standards around the world (rising economic tide in developing world, falling cost of living in developed world) are likely to make this process alot longer than prior history examples (maybe).
Societies are just like markets inasmuch as they are tightly coupled complex systems prone to periodic crisis and unravelings.
The gist was that outsized profits are controlled (or allowed) by government and when they get too big (there is a trade-off between profits and income), the resulting growing inequality leads to social unrest and political change. The article correctly argues that profits cannot grow at a faster rate than the economy for too long and established that they have been growing at a faster pace than the economy for the last 20-30 years.
I think this idea/notion is correct. The problem is one of timing. It is very hard to know when or what the last straw will be that has been added to the camel's back. Changing societal/cultural norms and rising living standards around the world (rising economic tide in developing world, falling cost of living in developed world) are likely to make this process alot longer than prior history examples (maybe).
Societies are just like markets inasmuch as they are tightly coupled complex systems prone to periodic crisis and unravelings.
Tuesday, January 14, 2014
I'm not bearish...I just don't trust it
I'm not bearish.
I really think the US economy is coming out of its slumber. Most of the signs are pretty good.
The problem is I don't trust the market.
After such a big run over the last year, I can see the market continuing higher. With a little bit of earnings growth (9% projected this year...which could be a stretch, but maybe it isn't) and a little more multiple expansion (say from 15.5x to 18x) the market could easily deliver another 26% return - and even then would not be overly valued. I find myself making these rationalizations. It is easy to do.
The problem is the higher it goes, the less margin for error there is and the more I don't trust it.
When you know you are playing a con(fidence) game, you are always looking to be the first to exit the party (which can make for some bad - kneejerk - decisions).
I really think the US economy is coming out of its slumber. Most of the signs are pretty good.
The problem is I don't trust the market.
After such a big run over the last year, I can see the market continuing higher. With a little bit of earnings growth (9% projected this year...which could be a stretch, but maybe it isn't) and a little more multiple expansion (say from 15.5x to 18x) the market could easily deliver another 26% return - and even then would not be overly valued. I find myself making these rationalizations. It is easy to do.
The problem is the higher it goes, the less margin for error there is and the more I don't trust it.
When you know you are playing a con(fidence) game, you are always looking to be the first to exit the party (which can make for some bad - kneejerk - decisions).
Time Perception
From Brain Pickings.
As disorienting as the concept might seem — after all, we’ve been nursed on the belief that time is one of those few utterly reliable and objective things in life — it is also strangely empowering to think that the very phenomenon depicted as the unforgiving dictator of life is something we might be able to shape and benefit from. Hammond writes:
"Time perception matters because it is the experience of time that roots us in our mental reality. Time is not only at the heart of the way we organize life, but the way we experience it."
As disorienting as the concept might seem — after all, we’ve been nursed on the belief that time is one of those few utterly reliable and objective things in life — it is also strangely empowering to think that the very phenomenon depicted as the unforgiving dictator of life is something we might be able to shape and benefit from. Hammond writes:
"Time perception matters because it is the experience of time that roots us in our mental reality. Time is not only at the heart of the way we organize life, but the way we experience it."
Sunday, January 12, 2014
Obvious Beforehand
It is obvious to me that the market will shortly (before July) have a 10%+ pullback in response to concerns about declining profit growth and mean reverting profit margins.
This conversation has been had over the last year but has yet to have effect.
Just saying!
P.S. I say this because I have a decent sized short position and it is getting hammered and I expect I'll be stopped out shortly - not long before the market loses its courage. It is also equally unlikely that I will reinitiate a short position in time to take advantage of the pullback - just the way things seem to work out.
P.P.S. This post points to the importance of behavioral issues, patience, courage, conviction and downside risk management/limitation.
This conversation has been had over the last year but has yet to have effect.
Just saying!
P.S. I say this because I have a decent sized short position and it is getting hammered and I expect I'll be stopped out shortly - not long before the market loses its courage. It is also equally unlikely that I will reinitiate a short position in time to take advantage of the pullback - just the way things seem to work out.
P.P.S. This post points to the importance of behavioral issues, patience, courage, conviction and downside risk management/limitation.
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