Right and Wrong?

Here is a comment from Catherine which she posted earlier today. Below her comment is my reply.

This is going to sound critical and I wouldnt want to write a blog and be subject to all the abuse you get so it is meant to be constructive.

Were you right? No I dont think you were. I started looking at this blog about 4 months ago and repeatedly said we were going lower.

I also looked back to your reports in Dec at 1500 and you were bullish then. I was bearish and have been since last August after Northern rock - too early yes. I was wrong then.

If I had followed your predictions then, I would have lost my shirt rather than having a v good year.

Now yes you will be right for a while. Between 2 weeks and 2 months. If it goes through 1250, it will be the later BUT this is still a bear market and there is a long way down on housing yet to come and on stocks at a later date.

Watch Marc Faber on Bloomberg tonight (and he knows what he is talking about. He has a great track record)

'Those who think we are in a new bull market are in fantasy land.'

Regards
Catherine

 

Catherine: 

I always enjoy reading your comments!  Thanks for joining the discussion. 

The principal conclusion I have drawn from my forty years in the markets is this. The name of the game we play is profit. To be a winner in this game you have to learn the art of survival, of losing only a little when you are “wrong”. And you have to learn how to make as much money as is reasonable when you are “right”. 

I might add that the mistake made by most people in the market is to think in terms of good or bad, right or wrong, and then to identify these polar opposites with profit or loss. This is psychological poison. For it limits that person’s ability to deal with adverse situations by taking losses appropriately and by adjusting his or her views in response to changing situations. 

The famous speculator Bernard Baruch is known for prospering during the great bear market of 1929-32 when the stock market in the U.S. dropped 90%. After his death one of his biographers examined his financial statements for that period. He discovered that Baruch’s portfolio during that time actually dropped 30% in value. What made Baruch a genius was that he lost only 30% while the average person lost 90% !!! 

As  you say, I did not see this bear market coming. With this in mind it is interesting to examine the results of the trades I have posted to this blog.  The first trade was posted on October 22, 2007, just 11 days after the top of the bull market. During the subsequent 11 months I have traded 54 units and made profits on 25 of them. Most of these trades were on the long side of the market. Net result? A profit of 157 points on 54 units. This works out to a 52% profit in 11 months trading the e-minis in a $15,000 account with a single unit being one e-mini contract. 

My retirement accounts are intended for longer term investing. As I write this, with the S&P at 1260, these accounts are down 3% vs. a drop in the S&P of  20% from its bull market high. 

So, as you say, I was “wrong” because I didn’t see the bear market coming. But most people would be happy to have the results I have achieved during the past 11 months.

I believe that thinking of your results in terms of "right" or "wrong" is what philosophers call a category mistake. Right and wrong have literally nothing to do with the markets. All that is relevant is profit or loss.