Random Thoughts
"To acquire knowledge, one must study;
but to acquire wisdom, one must observe."
― Marilyn vos Savant
As mentioned in the last newsletter, I do a lot of empirical research. That's a fancy way of saying I look at a lot of charts.
To recap:
30-something years ago (I'm from the 1900s), computers were slow, really slow. What takes less than a second today took 45 minutes or more. While waiting for scans to run, I filled the time with flipping through charts, lots of charts. This was the beginning of something wonderful.
By rough estimates, I've probably looked at over 12 million charts over the last 30 years or so (1,200-2,000 per day, 252 trading days per year, 30-something years).
Technology is great, but you should also use your brain. Channeling Yogi, you can see a lot by observing.
"Looking under the hood" gave me a feel for the markets.
Can't find setups to save my life/most charts looking like an electrocardiogram? Sit on your hands.
Having a hard time picking between all these wonderful longs? Look to buy.
Tons of shorts setting up. Look to short.
Going through thousands of charts also had many other hidden benefits. For instance, sometimes a sector was at or near new highs, but many stocks in the sector appeared to be topping out. The same held true for the major indices.
It also helped me recognize recurring patterns. Noticing markets take off without me motivated me to look for clues. That is how I discovered all the setups I trade today.
So, What's All That Empirical Research Saying?
Well, looking at tons of charts has had me a little bearish for quite some time (see the links to my video commentary below). The lack of follow-through has been abysmal. As soon as a sector gets going, it seems to come right back in. And, even if the sector looks okay, internally, there have been a lot of problems. For instance, despite Energies making all-time highs, I've been seeing mostly shorts setting up within.
Before The Bomb Blows Up
I occasionally do a market timing webinar when the market is at all-time highs titled "Before The Bomb Blows Up." It's a Sun Tzu in times of peace, prepare for war type of thing. I don't want to come across like, "great, now you tell me!"
Friends and family often wait until the market is down 20, 30 percent or more and call me in a panic. By then, it's too late. The bomb's already blown up. I'm in a darned-if-I-do-and-darned-if-I-don't situation. I can't explain to them that ALL asset classes will lose at least half of their value at some point in your lifetime, so be prepared to lose (at least) half of your money. If I freak them out, they sell everything and the market promptly reverses. If they don't listen, then they go on to lose half of their money.
Yes, "the market ALWAYS comes back." However, it can take decades. Mr. Collingwood once said that "The only clue to what a man can do is what man has done." Picking up on what Mr. Collingwood is putting down, the only clue to what a market can do is what a market has done. Yes, "the market ALWAYS comes back." However, sometimes that can take decades. Greg Morris once said that long-term stock market returns are based on an 81-year time horizon. And, like Sweet Brown once said, "Ain't nobody got time for that!" People have scoffed at me for saying that the stock market can go 25-years or more without making new highs. When I show them the charts going back to the depression, they say, "That was then, this is now." Well, look no further than March of 2000 to March of 2013. Suppose you bought at the 2000 peak and held. It wouldn't be until 13-years later that you finally started making money again.
