Thursday, May 10, 2012
I remember one analyst on BNN in particular as he looked down his nose at the commentator and said, "I am not a trader (emphasis on the NOT), I invest for the long term!" In other words, he was better than any trader. Trading, to him, was for the amateurs. At the risk of repeating myself, surely you and I are playing a different game than any fund manager, let alone the talking heads that appear on television. The major difference being, what they make from their stocks is mostly a side-show for them. Most of them are compensated six ways to Sunday and get paid regardless of how well their stock picks are performing. I have also seen analysts on TV who don't even have any of their own money in stocks! (Conflict of interest LOL!)
Do No Harm
This blog is about my sharing what I have learned over many years of playing the markets. I decided at the beginning of the year to publish my trades as teaching moments. I hesitated to do so for a couple of reasons. One, was because one trading style does not suit all. Another was because my time horizon has become increasingly shorter. I trade during the day. I don't want to put people behind the curve, trying to imitate me while they can't get in and out as easily as I can. I cut any losses extremely quickly in the current environment.
Bad To Worse
At that rate, I don't see the benefit of me sharing my trades with the average person trying to buy low and sell high as a means of making a reasonable return in these markets. The regulators forgot the meaning of their role a long time ago. High frequency traders manipulate prices in the name of so-called market liquidity. Highly leveraged Exchange Traded Funds (ETF's) change how markets function. Dark pools exist for the wealthy fund managers to hide transactions from the average investor. Derivatives cause nuclear level shock-waves in the markets. The rules put in place after the Great Depression to prevent it from ever happening again have either been revoked, or totally ignored.
Does that mean I think the personal investor should just give up, take what's left of their money and go home? Not at all. It just means keeping an eye on what's going on. With the rate of change in technology and in society, obsolescence is guaranteed. Buy and Hold has as much chance succeeding these days as the horse and buggy did outlasting the automobile at the turn of the last century. Nortel, and Research In Motion are recent infamous Canadian illustrations of what has become the half-life of modern day success.
The Goldilocks Solution
If Buy and Hold can't work, and day trading is overkill, then what is today's personal investor to do? In looking for an answer, I thought about the investing club I started. If anything, it perfectly illustrates the need for a Goldilocks solution - neither too hot, nor too cold. Investing clubs do not lend themselves to day-trading, and most fail to make money or serve to educate if the time horizon is too long. My solution there is the same as here - use technical analysis to decipher medium-term trends and trade (yes, trade!) accordingly. As a result, the trades I share on this blog are the trades we are making in my investing club.
I want to remind people that I am not a professional, and as such cannot advise others what to buy or sell. However, I have no difficulty sharing with others what I am doing, in the hope of serving as an example. Next time, we will take a closer look at how we trade in my investing club.
What is your strategy in this changing and evolving environment?