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Minyan Mailbag: Trust Your Gut?

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In short, and while I hope for the best, I'm prepared for the worst (I think).

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Dear Todd,

I have bumped into Minyanville via a New Zealand Financial newsletter. In 15 minutes of looking at the site I have enjoyed the rhetoric and style of the writing. I find that it panders to my dark side as far as human nature is concerned and my underlying distrust of all things that attract us to the market not only in making a bob but in getting things right.

In saying this, as has been demonstrated in history, even a relatively conservative portfolio over time, especially in the last 3 years has produced good returns as far as equities are concerned.

Currently I am extremely concerned about the markets moving forward in the next few years (remembering I live in NZ and have been trading NZ and Australia). My portfolio has been a buy and hold over many years, but in May I jumped out of the markets in Australia and reduced my exposure by 60% in NZ. My reasoning for doing this is due to looking at the fundamentals "I" understand and history and I cannot see (my gut) how the bulk of the market is going to move forward over a reasonable period as it has done in the past 20 years. I may be demonstrating my ignorance here and history tells me that is the case!

My gut tells me one has to actually have a little expertise moving forward due to current economic conditions. In saying this I have been in contact with what I term an 'old head,' or in your language an old timer. He has suggested the same rhetoric that has built my portfolio thus far; pick quality stocks and go long term, as I have been doing.

My problem here is I do not like losing or going backwards (outside of the day to day norms), but my gut is currently telling me the markets world wide are close to taking a real clobbering for a prolonged period.

Down under we lack the expertise in the Asian arena. The real expertise lies in the UK and the US. By expertise I mean managing risk. But also I feel these are markets one has to have some sort of exposure to long term, not rocket science; I know as I am 10 years behind but that currently is how I like it. I do not need to make all the easy money?

I am weary of anything other than what I call source and sell operators, hands on brokers who demonstrate track records in the business of the markets. I come from a trading background and these principles, in my opinion, are the only principles to getting it right for all parties. We have had some nasty experiences down under with managed funds.

I am now at a time where my gut is saying jump out of the market for a few years and invest elsewhere, but this goes against all the principles of my past. I feel the fundamentals of the market have altered beyond my capabilities or appetite for risks I currently perceive.

Am I just another nervous Nelly or is my gut true to form? Or is the cycle just another cycle and I should just get on with it? After all, the market is the market.

I would very much appreciate your comments and look forward to hearing from you.

Best Regards
Pete


Pete,

Thanks for the note---I love NZ--was there on holiday a few years back. We have a "professor" in MV, Laurie McGuirk, who hails from Australia. I'm sending him your note (read below) with hopes that he kidnaps you and brings you to Minyans in the Mountains III. ;-)

I agree with your gut and am a bit weary of the buy to hold strategy. As this chart shows, we can indeed see a prolonged period of sideways action (at best). I also view asset classes vis a vis the USD, which has been hammered for 30% since the back of the bubble (to finance the 'expansion'). In short, and while I hope for the best, I'm prepared for the worst (I think). That includes a potential depression , which is the intuitive 'other side' of a bubble.

I don't toss that word around lightly as it's serious stuff. However, given how remote most everyone believes those probabilities to be, I would be remiss if I didn't point to it as a possibility. In an era of immediate gratification, we fast tracked the recession of the post-bubble spill. And I would further argue that in a world of "haves vs. have nots," there is a growing contingent of people who have already begun to feel the pinch.

Minyanville is a community predicated on fiscal fitness and, as we edge towards our destination, our mission is simple: to enhance human potential through financial understanding. Sometimes the truth hurts--and other times it's simply prolonged--but regardless of which way the wind sways, we're gonna get there together. That's just what we do.

Best always,
Toddo


Pete,

G'day from Sydney. Did you really find MV via a NZ publication?? I own a property on the Sth Island and fly-fish there every year….it is all part of my personal risk management system!!!

I agree that there is some nasty risk out there, much traditional risk is underpriced, IMO, and more importantly, seriously misunderstood. That's why I love Precious Metals. Historically, by any measure (except nominal USD) they are being given away at present.

If you're in Sydney, let me know, I'm always up for a beer. The rugby tonight will be interesting- I reckon the Boks will go the Biff - the only thing they might have a chance of winning!

Best
Laurie

(Position in precious metals)


R.P.
No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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