I was thinking over the weekend how far I have come in understanding the markets better. I have put in quite a bit of seat time and have paid a handsome tuition (sometimes repeating a class) to learn the market's lessons. I'm still learning, and my tuition is much cheaper! I was pondering about whether or not I had actually outgrown the name of my blog (a notion quickly dispelled this weekend in looking at my chart books!).
First, an aside. Beginning this endeavor to understand the markets has taken me down the road that started with being unconsciously incompetent. While unconscious incompetence in driving can cause great harm to one's body, such a state in undertaking the markets can cause a little corporeal damage to the portfolio.
There is a terrific article at Market Masters (and other great stuff worth reading) that talks about the 4 stages of competence from a trading perspective.
- Unconscious Incompetence
- Conscious Incompetence
- Conscious Competence
- Unconscious Competence
I think I'm a 2.75 on that scale. Over the weekend, I was reminded how aptly named my blog is. As I was going through my detailed subsector report, I found a bushel of sectors above their pre-crash highs:
- Apparel makers
- Clothing and accessories
- Broad line retailers
- Commercial vehicles and trucks
- Computer hardware
- Electronic equipment
- Industrial Engineering, machinery, suppliers, transportation (4 sectors)
- Personal goods
- Restaurants and bars
- Specialty chemicals
- Specialty retailers
- Travel and Leisure
- Waste disposal
Besides finding a way to complain while giving you that list of sectors, that project of sitting down on Sunday by the fire with my book of charts reminded me of another important lesson. (Can you tell I'm in a reflective mood?). Naturally I have to yammer a bit before stating the lesson.
In 2009, the day after Thanksgiving, I elected to do a sector study of gold miners. I spent the entire day looking at charts and profiles of miners. I believed that they had bottomed. What did I do? I dithered. I've come to believe that nothing is more dangerous than dithering. I'll devote an entire post to dithering, so I'll spare you having to trudge through more words on this. But there are a couple of points to close with:
- The charts DO tell us what the price action is over time. And the sectors' price action in relation to others tell us where money is going. Our job is ultimately to put our money in places where it will increase.
- Price action is neither valid or invalid relative to our opinion about it--it just is. We either choose to cultivate habits that (1) allow us to discover such price action (our research) and (2) act in accordance with the evidential matter, or we choose to dither.
- Dithering is not a helpful trait. We must remember that the market will not pay us for NOT taking a risk. Seeing constructive price and volume action and responding by dithering because (1) the action is not in accord with our opinion, and/or (2) we want more information, more certainty, more people supporting our decision means that we've given up opportunity for 'certainty'. In fact, that means that we have increased the risk in our position as whatever news we were waiting for is also commonly known and likely priced in.
I want to close with a quote from George Soros that I keep under my "Wisdom" tab. It is something worth remembering when what we 'know' v. what we 'see' are at odds.
“Economic history is a never-ending series of
episodes based on falsehoods and lies, not truths. It represents the
path to big money. The object is to recognize the trend whose premise
is false, ride that trend, and step off before it is discredited."