Best of 2005: This is Why We Write
The macro environment is not just interesting, it is novel, one for the ages.
This article was published on 9/14/2005
Editor's Note: Minyanville is a community of people who share an interest in fiscal literacy. As perspective is an important aspect of our daily routine, we share this exchange with hopes that it adds balance to your process.
Thank you for sharing your view as you see things.
Minyanville has been a place that has helped me balance out the different sides to trading in what can many times be a lonely journey when in the OPM business. While it did not take me long to learn that I need to first come to the market with a realistic (vs. optimistic) assessment of risk, and then let the reward take care of itself, you and the Minyanville crew have helped me develop my understanding of risks that may be present yet unrealized.
I know you are taking risk in the financial marketplace, but you have another layer of ego to work through than any other successful trader, as you are laying it on the line with your written word and that sharing is what I appreciate.
Have a great evening.
Thank you for the kind words; they mean much because that is why we write.
I have learned that it is more important in gauging the risk one takes (really in anything) in attempting to make a return in order to last. No matter what, there is always someone who gets it right, and people notice that. What they don't notice is how many times that same person got it wrong (if that person is good) or notice if that person hasn't been around long and maybe just got lucky. I will be wrong many times, but can I last until I get it right? Can I manage risk appropriately in order to let opportunities work for me?
I made a comment about EP yesterday. We did our homework when the stock was below $7 and structured an option trade that had great return potential for the risk (the position would have made money until $2 or below and a lot on the upside). The position is still making money, but I have greatly reduced the risk. I took the meat out of the trade and am willing to leave the rest. The stock may go to $50, but I am done with it.
I do take risk; I would not make money if I didn't. In fact, I take more than people probably realize from my writing; but the more risk I take, the more return I must anticipate. I weight low-risk trades with a lot of capital and high-risk trades with low amounts of capital. Too much diversification can water down returns to nothing while too little can turn into disaster.
I don't really make "calls," at least those associated with timing. The macro environment is not just interesting, it is novel, one for the ages. In the long run I don't think things work out without a major correction in asset prices occurring. It all comes down to untenable debt. But it could take years to play out, or days. There is only one possible solution I can see: The U.S. must be willing to sell assets to foreigners as the dollar depreciates, and we must be willing to do so in great quantities. We will sell as many bonds as they want, but will we sell companies and vast amounts of real-estate? We can't have globalization unless we are willing to go the whole way. Globalization involves the integration of ownership as well as resources. I don't write about this so Minyans can necessarily make money with it, I do it so they can prepare for it.
That is the canvas, an ever-changing canvas that I daily build a portfolio around.
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