Despite my best efforts to do otherwise, I still find myself thinking (and acting as if) logic has a place in investing. What I've come to learn is that in the long term, logic (fundamentals) always wins, but in the short term psychology wins. Kind of like relationships--passion can take you part of the way--and such a way that it is!--but when passion wanes you better have some better stuff supporting the relationship!
Risk in the marketplace is greatest when the bandwidth between emotions and fundamentals. We can dial back to 1999/2000 when it didn't matter whether one was making money or not; it mattered only how quickly you could grow your sales. Ultimately, you either have to make money or be able to finance (investors, shareholders, leverage) your business model. That's a fundamental that is a natural law of the business universe. People want to earn a return on their dollars invested ,and in the case of leverage, ensure that interest payments can be made and their principal loan amount is protected.
A reader asks why I think that the economy is slowing. Job growth below 200K is a sign of a slowing economy as is reduced consumer spending (retail sales are waning), business spending (factory orders are slowing and cap ex has not been the saviour--remember when MS's Vista was supposed to spur the biggest cap ex spending ever seen?). I think that most people agree that the economy is slowing, but the debate is whether the slow down is recessionary or not.
13 comments:
Your posting can be discussed line by line, but to correct one sentence, most "lay people" believe the economy is slowing.
Regarding bloggers and other non-authorities, the less you know about economics, the more likely you are to predict a recession.
Anonymous--I don't pretend to be anything but a layperson, but I've had to manage businesses through three recessions--two of which were not called by "authorities" until too late. I'll take my business experience over authorities any time.
Do you still have SEED or Hero?
One is working;I have the other one.
It is difficult to be diplomatic with this type of venue.
Business experience has little to do with economics on a macro level, even if that experience is at the cfo and higher level of a mid size corporation. Truthfully, would the current president of your former corporation care one way or the other if Singapore announced that they are going to let their currency appreciate, (which they announced yesterday)?
All I am trying to say here is that it takes a certain set of skills to make sound investing decisions. Once these skills are attained, there are only two decisions that need to made during a multi-year economic cycle: when to buy and when to sell. When you make those kinds of (fundamental) investing decisions, you will realize better returns than about 95% of most traders.
Anon 10:23--Yes, I have SEED and I'm very happy.
Anon 10:24 a.m.--No it is not difficult to be diplomatic. Losing a condescending and patronizing attitude is generally a good first step. I highly recommend it.
Now that this discussion has been reduced to one that is mostly personal, I will end my side of it.
Good luck with your bearish outlook of the economy, although I am quite confident you will remain perplexed for awhile longer.
Congrats on SEED,
and HERO? Do you still hold? More upgrades than downgrades. DB likes it. Chart looks tight with positive divergence.
i think we are in a mild stagflationary recession, simply because inflation is vastly under reported.
it doesn't show in the economic data, but i get the sense from everyday people that they are struggling just to pay their bills. it may not be the "technical" definition of a recession, but it's the only one that really matters.
our standard of living is slowly eroding away b/c of rising prices. it happens so slowly that people barely feel it. on top of that, those prices aren't considered in economic data.
"What I have come to learn is that in the long term, logic (fundamentals) always wins, but in the short term, psychology wins."
This reminds me of something Warren Buffett has said: short term, markets are voting machines; long term, they're weighing machines.
I'm working to be a really good buy and hold investor in my non-qualified, taxable portfolio, using logic (i.e., fundamentals).
I look for good companies with a history of steadily increased dividends and rising stock price, which I buy "on sale." This results in infrequent purchases made at well-discounted prices.
Leisa, when you make a killing on a trade, to you reserve some of your profits and keep them? (I'm thinking of that old nugget from "The Richest Man in Babylon" i.e., to pay yourself first.)
I have a little trading strategy that I frequently use. When I've closed out my position, I then wait to re-enter using all my original money plus my gains. Not sure if I shouldn't be "paying myself first" and reserve a bit from the profits, maybe even keeping them all and re-entering a trade with the same, original amount of money.
Thoughts?
"All I am trying to say here is that it takes a certain set of skills to make sound investing decisions. Once these skills are attained, there are only two decisions that need to made during a multi-year economic cycle: when to buy and when to sell. When you make those kinds of (fundamental) investing decisions, you will realize better returns than about 95% of most traders."
And I thought *I* had difficulties in the diplomacy department.
Cheshire Cat
Anon 10:24--I apologize for my terse reply. The tone and content could easily be read to be quite the opposite of how I took it--which was to be dismissive of bloggers and "non-authorities". We bring so much to communication, sometimes not the right things. I'll accept my failure to be a responsible communicator.
I do not disagree at all that one needs to understand when/what to buy during an economic cycle. Unfortunately, there is so much disagreement among experts among lay people and even the chickens in the hen house about WHICH part of the economic cycle we are even in. That is why I brought up my business experience--one's ear is to the rail so to speak.
So given that there is not common agreement about where we are in the economic cycle (remember when all the smart money was predicting rate cuts for a full 16 mos or so before they occurred?) then the when to buy (what to buy) and when to sell (what to sell) are not so neatly packaged.
Cheshire Cat: As I've proven time and again--we ALL have issues with diplomacy. Sometimes I'm a shoot first ask for clarification later. Ah, our terrible biases and baggage!
Hmm...maybe its the residential housing market tanking....or the sub-prime seize up (that is supposed to be behind us)...or the poor retail numbers coming in...or the thinning out of the commercial construction market...or...
There is no universal definition of a recession. The one that the government uses is rather restrictive. However, it is often the slow up period before the official recession that is the most damaging. Thus you have a number of businesses feeling the pinch...whether you get to a US Government sanctioned recession or not.
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