Has the Low Hanging Fruit Already Been Picked?
Live from the beautiful Ojai Valley Inn & Spa
Our professors and partners have come from as far away as Australia to contribute their wisdom and guidance. Throughout the next two days we will be highlighting some of their ideas on managing risk and staying in the game as catalysts for discussion.
-Aggressive shorter-term opportunistic trading in primarily small and mid-cap equities along with core income generating investments (mostly bank names that are takeover candidates) and longer term themes (commodities)
-Long / short equities, extensive use of ETF's and limited use of derivatives
-Traditional technical analysis based approach with a focus on taking advantage of momentum and sector rotation. Focus on volume as a key confirmation.
-Separation of the trading vs. investment side of the portfolio
Trading based on technical triggers and event based catalysts. If those drivers don't work - get out!
-There will always be opportunities in the market. The key is developing a disciplined yet flexible system to identify them. A trader must be aware of the risks involved but not to the point of decision paralysis. Time horizon and risk tolerance are critical in this regard.
-The ability to deal with the enormous fiscal imbalances brought on primarily as a function of an aging population will remain critical to the impending economic / market path.
-M&A, buybacks and tenor of the corporate bond market (per Brian Reynolds work)
-Global shift in economic influence driven by India & China create as much of an opportunity as a threat.
-Nuclear proliferation (Iran, North Korea), terrorism, the relapse of Russia, and other geopolitical power struggles (Middle East) continue to remain a threat to global stability while underscoring the need to lessen the reliance on foreign sources of energy.
-Liquidity-driven bubbles - hedge fund space, real estate speculation, psychology
Outlook for the financial markets:
-All of the aforementioned issues have resulted in a period of greater uncertainty and higher risk precisely at a time when the link between global economies is at its greatest. How Washington attempts to deal with these issues will be the critical determinant of the markets path and / or the probability and timing of some type of massive structural economic dislocation. My guess is that the Fed / policy makers could continue to surprise with the ability to stall trouble for longer than many think. The economy must deal with these issues however and until it does will continue to crawl along with liquidity, low interest rates, and debt failing to translate into a meaningful pick up in economic growth.
-With respect to the markets, the low hanging fruit has already been picked as we're late in a cyclical bull move that began off the March '03 lows. I do think the market will have another push higher (primarily as a function of a squeeze and a lack of buy-in) in the overall context of a spike in volatility. I continue to view the current environment as a time for stock picking (with tradeable moves on both sides) but one that must be approached with caution given the overall risk backdrop (see Kevin Tuttle's 100 year Dow chart).
Thoughts on controlling risk and staying in the game:
-Develop an effective approach that you can follow in any market environment. If you don't map out a route for success (and stick with it), don't be surprised if you end up getting lost.
-Technical approach is a set of guidelines that can help improve your chances of success - it isn't the only answer nor is it fail safe. Find what works for you.
-Keep extreme emotions in check (namely arrogance, greed, hope and panic)
-Successful trading is a two-sided coin that must factor in both the probability / expectations for both risk as well as reward.
-Remain opportunistic and flexible - don't press things when the set-ups aren't there. Selective deployment of capital is the first key to success; Proper risk management is the next.
-Swimming against the tide can work if your timing is perfect; but be aware of the big picture though or you may simply be increasing your risk of drowning. Being early can be just as painful as being late.
-It's ok to be wrong - the key is to minimize the damage and refuse to "stay wrong."
-I've found trading is like my golf game - the harder I swing, the more trouble I get into. Take ¾ swings and keep it on the fairway!
If I could give one piece of advice to attendees...
-My father was wise enough to teach me that I could learn a lot by simply studying the world around me and by doing more listening than talking. Fortunately Minyanville provides a tremendous opportunity for all of us to become a student of the market every day with lectures served up from some of the best in the business. You don't have to follow someone else's approach (or agree with their opinions); the goal of Minyanville is not to try to make you think a certain way, it is to try to help you think for yourself. A better understanding of the other side of the trade and the ability to assimilate pieces of wisdom from experienced professionals will certainly make you a better trader in that regard. You don't have to learn the hard way - that's what the Minyanville community is all about.
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