Everyone is a long term investor, until...

Everyone is a long term investor, until the market tanks.

Keep It Simple - The Crux of Value Investing

I don't think you have to do fancy algorithms or deep quant or anything else to uncover deep value. You only have to be patient and be willing to pick-up a good company when the market has discarded it to the side of the road.

I call this value investing. In order to do it you have to have some gumption as to what you think the company is worth. The reason and the cause of the 'fall from grace' are important because you have to discern that it is a temporary setback.

The aforementioned is a company specific self-inflicted own goal or some sort.

The other major time when 'value' investing can work healthily is when the market itself has got itself in a panic and is casting everything out with the bathwater.

Contrarianism is ingrained deep within the process. 

Both instances call for a gauge of intrinsic value, conviction, courage and patience. Those are the most important elements to being and becoming a better investor.

Psychological Foibles

You think the market has risen too far too fast and is due a pullback.

The conundrum.

How and when do you decide to get back in?

The Psychological Challenge
The market starts breaking a little. Hope rises. It is moving your direction. You don't want to jump in too soon. After all you have been short and patiently waiting for this for quite a while. You don't want to waste those missed opportunities (now sunk opportunity cost) by blowing your powder too soon and seeing it pan out in the fashion you envisioned all along. On the other hand, you have been in this position before on the run-up, failed to cover or buy the dip, and seen it tear off again, only to have to chase (or worse fight a losing cause).

There is no good answer to the question. Doing your due diligence. Setting price levels and being disciplined. Having a system, a process, and a philosophy. You're not going to win them all. But you do want to have a system or process in place where you put the odds on your side when you go to bat.

Market Due A Pullback

The market is due a pullback. The odds are in my favor. I know that. x number of up days in a row. x number of days without a 5% pullback. But just because I know the odds are in my favor, doesn't make it any easier to sit on losing positions and watch them drain away.

The market is up 16% YTD. 21% in the last six months. The move has been relentless. 7% in just the last month. There has been little to no respite. A couple of minor pullbacks here and there. Other than that, it has been a tidal surge.

The move is flushing the bears and the laggards out. I feel it. I can feel the sentiment changing. I feel better about the future. I see things differently from what I saw them before. I can see the justifications for valuation levels, expanding multiples and all sundry of related thoughts that go hand in hand with this kind of move. Don't fight the Fed (or is it ABE and don't fight the trends/momentum). I have some short positions on that are getting pretty painful. I shorted for the wrong reason (valuation) and they are names leading the charge. I have gone against this thing for the last couple of months - selling into it, putting on shorts and directionally speccing on market puts. I know that you need to manage your risks. I know there are times to cut and run, take the loss, live to fight another day.

But I have been here before. I felt those same feelings, and I have not held to my conviction or had the patience to hang tough. I have spat the dummy and watched as I missed out on the rewards that were there waiting for me. Not this time. I am going to go with my conviction. I am going to have the fortitude to go against the flow. But I am also going to put in some stops that will minimize the damage should it continue to go against me.

Above the fray

My day is a panoply of information. From sign-on to sign-off, it is all about gathering and processing the latest information.

It is one thing to gather and process information, but at some point, you need a view, a conviction. And rather than seek additional information to either affirm or deny that view, you need to take a step back and process the current zeitgeist, as translated by the markets, in the context of that view.

It is the ability to stand above the fray and discern the general forces at play that I most admire.