Markets Can And Are Timed. If Goldilocks Is So Great Why Is Buffett Swimming In Cash?
"I am out of step with present conditions. When the game is no longer played your way, it is only human to say the new approach is all wrong, bound to lead to trouble and so on. On one point, however, I am clear. I will not abandon a previous approach whose logic I understand (although I find it difficult to apply) even though it may mean foregoing large and apparently easy profits to embrace an approach which I don't fully understand, have not practiced successfully and which possibly could lead to substantial permanent loss of capital."
- Warren Buffett in a letter to his partners in the stock market frenzy of 1969.
How often have you heard markets cannot be timed? The correct interpretation of that statement is "I cannot time the market.". Warren Buffett has been one of the greatest long term timers of our generation. He cashed out in 1969 and waited until the market crash of 1974 to buy with wreckless abandon. Five years of waiting. Do you have that kind of discipline? He bought massive amounts of silver in 1998 and sold out in 2006 as I recall. As I've said before, Buffett times the markets and does so regularly. Maybe not down to the day but for long term cycles. And, he is willing to wait years for overbought markets to collapse as they always do. Does it give you peace of mind his company is sitting on nearly $50 billion in cash? Patience can be defined in years to the savvy investor who feels no emotional compulsion to buy assets that are ridiculously valued for fear of being left behind. Today global markets are ridiculously valued. Of course, I've said that so often I now need an appointment with a psychiatrist. Mega caps are cheap I am told. I see no better example than one of the mega caps which have done quite well since the dump last year. A company I've written about as being very overvalued, IBM, is closing in on six times book value. If you think now is a good time to buy any company with a paltry dividend and single digit growth at that valuation, you need to pick up Fun with Dick and Jane and start your education over again.
The position I adopted long ago is to never give investing credence to anyone who does not professionally and successfully manage money on a large scale through good times and bad and never take trading advice from someone who isn't a successful trader themselves. I don't mean traders who failed yet proudly tell you they "used to be" a trader. And, I don't mean pit traders we see on CNBC either. They cheat. They play off of the emotional vibe in the pit. When they leave the pit, they don't typically have any trading models and their trading skills are usually worthless without knowing that Exxon Mobil or some other massive player has dumped a huge order into the pits that they can play off of in an open outcry environment. In other words, unless you are Bill Miller, Warren Buffett, David Dreman, Jesse Livermore, Ben Graham, Jim Simons or someone equally successful, I don't really care what what you have to say about the stock market because it's nothing more than uninformed gibberish. It's no different than me giving a neurosurgeon advice on spinal cord surgery. (There is actually an interesting story behind this statement that I might share some time.)
There are many methods and many time frames under which one can time the markets. Markets can be timed in minutes, hours, days, months and years. The more granular the timing, the more transient data plays a role. Below are system generated timing signals to a key component of my intermediate term trading system overlaid on the weekly S&P 500 cash market. System generated meaning they are programmed to yield a signal when certain events come to pass and not determined by my emotional state. In other words, I don't use my arbitrary state of mind to determine what the markets are doing or what I should be doing. The trading system is designed around the S&P 500 cash market. It is a trading system which is in the market at all times. Trading signals are issued at the weekly close of the S&P 500 cash market and new positions are to be taken at the open on the following Monday. ie, The arrows on the chart are long and short signals generated at week's end to be taken on the following week. In the last ten years, it has generated 35 signals and 33 have produced positive results. That's almost a 95% success rate. That is better than anything I have ever seen publicly shared by any Wall Street trading firm. In other words, it's pretty darn good. It's not perfect but there is no perfect trading system. The largest draw down has been 7% and I use filters to stop out before any 7% loss would ever develop. It works quite well in trending markets, up markets, down markets and range bound markets. I can reduce or increase the sensitivity by varying the feedback just like an engineering control system. In layman's terms, what is most important is that I can reduce the number of signals which theoretically increases the accuracy over time. Do they teach that in Harvard's MBA program? I think not. That's why Wall Street's trading machine is really run by scientists in the back rooms of quantitative investment firms such as Goldman, Morgan, Renassiance and elsewhere. Not that I don't admire Harvard MBAs. Where else can you learn to jettison research & development, treat employees as an expense, pay yourself 250 times an average salary while investors suffer sub par returns and employees do without raises, offshore manufacturing because you are clueless to lean production techniques, hoodwink company shareholders to go private to escape the pressures of Wall Street & saddle them up with debt and send them public again and finally learn to value markets such that you thought equities were going to Dow 50,000 in 2000? May I please join the club of under performing shameless self-promoters? I'm trying my best. I kid. But, I am starting to develop serious issues with some of our MBA programs. They seem to be great for Wall Street but are grounded in no reality of main street skills. That's a shame because I've often thought of getting my MBA.
The signals below are out of the box with no filtering. Two weeks ago it issued a sell signal yet nearly everyone I hear in the professional investment community seems rabidly bullish. Even the bears are bullish. Need I remind anyone this market is only up about 5% this year. Yet all I hear constantly is the deafening Orwellian brain bending implying that if you aren't invested, you are being left behind. Wall Street is quite good at that. Not only are they good at it but they are prone to believing their own foolishness. That herd mentality contributes to asset bubbles. In other words, smart money is only smart until it is no longer smart. Didn't the great philosopher Yogi Berra say something like that? Put another way, Wall Street isn't really smart money. It's market moving money. And, you never want to be on the wrong side of market moving money. That is why I don't really care how disjointed markets get. I can ride the pig to the moon just as easily as anyone else. Unfortunately, I do become concerned about more important issues such as global economic prosperity and the well being of my fellow humanoids across the globe. Shoving global equities to stratospheric levels doesn't generally portend good news for the rest of us. Wall Street is always wrong eventually. Always. Just as perma-bears are always wrong eventually. And, yes, I'm wrong my fair share of times too. But, if I admit that, do I still get to join the club?
This past few month's rally has been a short covering rally regardless of what the bloviating herd on CNBC tells you. Traders push their advantage when they have it and that is what we have been seeing in this rally. When Amazon jumps almost 50% overnight on a massive short position, it has nothing to do with fundamentals. It is roaming bands of marauders jamming stocks with huge short interest to make a small fortune while creaming the shorts. When the shorts have been rooted out, what drives the market higher? Liquidity? Insanity? PE expansion? Aliens? God? As I said before, I expect more volatility this year and I expect a good dose of it is coming up soon enough. If I filter this signal, I don't yet have an elegant and pure short yet as I stated a few posts ago but what this does tell me is there is a very high probability time is running out on the Goldilocks crowd. Higher highs at some point? Never underestimate the ability of group think. I do quite often.
- Warren Buffett in a letter to his partners in the stock market frenzy of 1969.
How often have you heard markets cannot be timed? The correct interpretation of that statement is "I cannot time the market.". Warren Buffett has been one of the greatest long term timers of our generation. He cashed out in 1969 and waited until the market crash of 1974 to buy with wreckless abandon. Five years of waiting. Do you have that kind of discipline? He bought massive amounts of silver in 1998 and sold out in 2006 as I recall. As I've said before, Buffett times the markets and does so regularly. Maybe not down to the day but for long term cycles. And, he is willing to wait years for overbought markets to collapse as they always do. Does it give you peace of mind his company is sitting on nearly $50 billion in cash? Patience can be defined in years to the savvy investor who feels no emotional compulsion to buy assets that are ridiculously valued for fear of being left behind. Today global markets are ridiculously valued. Of course, I've said that so often I now need an appointment with a psychiatrist. Mega caps are cheap I am told. I see no better example than one of the mega caps which have done quite well since the dump last year. A company I've written about as being very overvalued, IBM, is closing in on six times book value. If you think now is a good time to buy any company with a paltry dividend and single digit growth at that valuation, you need to pick up Fun with Dick and Jane and start your education over again.
The position I adopted long ago is to never give investing credence to anyone who does not professionally and successfully manage money on a large scale through good times and bad and never take trading advice from someone who isn't a successful trader themselves. I don't mean traders who failed yet proudly tell you they "used to be" a trader. And, I don't mean pit traders we see on CNBC either. They cheat. They play off of the emotional vibe in the pit. When they leave the pit, they don't typically have any trading models and their trading skills are usually worthless without knowing that Exxon Mobil or some other massive player has dumped a huge order into the pits that they can play off of in an open outcry environment. In other words, unless you are Bill Miller, Warren Buffett, David Dreman, Jesse Livermore, Ben Graham, Jim Simons or someone equally successful, I don't really care what what you have to say about the stock market because it's nothing more than uninformed gibberish. It's no different than me giving a neurosurgeon advice on spinal cord surgery. (There is actually an interesting story behind this statement that I might share some time.)
There are many methods and many time frames under which one can time the markets. Markets can be timed in minutes, hours, days, months and years. The more granular the timing, the more transient data plays a role. Below are system generated timing signals to a key component of my intermediate term trading system overlaid on the weekly S&P 500 cash market. System generated meaning they are programmed to yield a signal when certain events come to pass and not determined by my emotional state. In other words, I don't use my arbitrary state of mind to determine what the markets are doing or what I should be doing. The trading system is designed around the S&P 500 cash market. It is a trading system which is in the market at all times. Trading signals are issued at the weekly close of the S&P 500 cash market and new positions are to be taken at the open on the following Monday. ie, The arrows on the chart are long and short signals generated at week's end to be taken on the following week. In the last ten years, it has generated 35 signals and 33 have produced positive results. That's almost a 95% success rate. That is better than anything I have ever seen publicly shared by any Wall Street trading firm. In other words, it's pretty darn good. It's not perfect but there is no perfect trading system. The largest draw down has been 7% and I use filters to stop out before any 7% loss would ever develop. It works quite well in trending markets, up markets, down markets and range bound markets. I can reduce or increase the sensitivity by varying the feedback just like an engineering control system. In layman's terms, what is most important is that I can reduce the number of signals which theoretically increases the accuracy over time. Do they teach that in Harvard's MBA program? I think not. That's why Wall Street's trading machine is really run by scientists in the back rooms of quantitative investment firms such as Goldman, Morgan, Renassiance and elsewhere. Not that I don't admire Harvard MBAs. Where else can you learn to jettison research & development, treat employees as an expense, pay yourself 250 times an average salary while investors suffer sub par returns and employees do without raises, offshore manufacturing because you are clueless to lean production techniques, hoodwink company shareholders to go private to escape the pressures of Wall Street & saddle them up with debt and send them public again and finally learn to value markets such that you thought equities were going to Dow 50,000 in 2000? May I please join the club of under performing shameless self-promoters? I'm trying my best. I kid. But, I am starting to develop serious issues with some of our MBA programs. They seem to be great for Wall Street but are grounded in no reality of main street skills. That's a shame because I've often thought of getting my MBA.
The signals below are out of the box with no filtering. Two weeks ago it issued a sell signal yet nearly everyone I hear in the professional investment community seems rabidly bullish. Even the bears are bullish. Need I remind anyone this market is only up about 5% this year. Yet all I hear constantly is the deafening Orwellian brain bending implying that if you aren't invested, you are being left behind. Wall Street is quite good at that. Not only are they good at it but they are prone to believing their own foolishness. That herd mentality contributes to asset bubbles. In other words, smart money is only smart until it is no longer smart. Didn't the great philosopher Yogi Berra say something like that? Put another way, Wall Street isn't really smart money. It's market moving money. And, you never want to be on the wrong side of market moving money. That is why I don't really care how disjointed markets get. I can ride the pig to the moon just as easily as anyone else. Unfortunately, I do become concerned about more important issues such as global economic prosperity and the well being of my fellow humanoids across the globe. Shoving global equities to stratospheric levels doesn't generally portend good news for the rest of us. Wall Street is always wrong eventually. Always. Just as perma-bears are always wrong eventually. And, yes, I'm wrong my fair share of times too. But, if I admit that, do I still get to join the club?
This past few month's rally has been a short covering rally regardless of what the bloviating herd on CNBC tells you. Traders push their advantage when they have it and that is what we have been seeing in this rally. When Amazon jumps almost 50% overnight on a massive short position, it has nothing to do with fundamentals. It is roaming bands of marauders jamming stocks with huge short interest to make a small fortune while creaming the shorts. When the shorts have been rooted out, what drives the market higher? Liquidity? Insanity? PE expansion? Aliens? God? As I said before, I expect more volatility this year and I expect a good dose of it is coming up soon enough. If I filter this signal, I don't yet have an elegant and pure short yet as I stated a few posts ago but what this does tell me is there is a very high probability time is running out on the Goldilocks crowd. Higher highs at some point? Never underestimate the ability of group think. I do quite often.
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