A Couple of Lessons Learned and How the Market Discovered My Genius

The market instability since February 27 (that's the top as some such as MarkM on Bill Cara's blog and GaryK have called) is a bit of a surprise to me. Why? Because to my mind, these things were self-evident throughout 2006. I fully (fool-y) expected the market to catch up with my cognition sooner (Fall). I made bets--unprofitable ones I might add--that the financials would suffer. I had puts on IYF, WFC, MS and BAC. They went kaput.

Lesson: Think for yourself; form your hypothesis(es); maintain a neutral bias until the market recognizes your genius.

My second lesson was that I did not act boldly in these last couple of days. Remember our Zurich Axiom: Always play for meaningful stakes? I know that hindsight is 20-20, but I should have trusted my judgment over the last two days and plunged my toe in the water with my options on MS and WFC. I'm not intentionally engaging in coulda, woulda , shoulda--it's counterproductive, and it invokes biases that are linked to hindsight--but rather honest reflection. I had done the research. What I had failed to do was quantify the risk/reward AND I let the overhang of past indiscretions undermine my confidence.

Lesson: Quantify your risk reward, play for meaningful stakes.

I'm reminded of some "mindfulness" reading and the importance of "being in the moment". I still have some psychic overhang from my mistakes on being "early". But what this week has provided for me is this: This is the first downturn that I anticipated, understood and prepared for. I've crossed a threshold, and I know that will give me appropriate confidence in the future.

I'm also reminded of gratitude. I'm grateful to the tireless, knowlegeable professionals listed on my info mosaic and who write prolifically and generously share their knowledge. I'm grateful to the blogger commenters here and on other sites that share their perspectives. One needn't agree with another's perspective/opinion, but I promise you if you take a moment to understand his/her kernel of truth your own perspective will be enriched.

I will say that probably the greatest thing that I've learned is that in the investing world, the cold hard truth has sharp jagged edges that tears the fabric of comfort that envelopes Wall Street. So people who speak it are actively demonized (just watch that insufferable Mark Haines' treatment of folks like Peter Schiff if you have any doubts). Any worries that you might have are eased by nebulous assurances. You're hearing it on the tubes now. The absolute master of this charade is Abbey Joseph Cohen of Goldman Sachs. She's good--and I don't believe a word she says.

We will certainly see new events unfold today. Japan was down 3% overnight. I noted that as soon as FXY began to lift yesterday (mid-morning), the market went down in lockstep.

As I write, the US futures look flat. I think that if this ends up being a girly-man decline, we will have this residual uncertainty on whether or not we have experienced the four year correction. But that uncertainty provides "content" for all of the media outlets!