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Let the Market Turns Call You


Looking for disproportionate odds that pay more than they cost affords you the ability to be wrong more than you're right and still make money.


I have to chime in after reading Todd's visit with Tony Dwyer.

First of all, "there is no better balance offered in this business than in MV" – that's not a quote from me, rather what somebody told me yesterday who I didn't even know beforehand. Todd and Tony offer two views, each exceptionally well thought out, and I for one feel truly lucky to get to read it. I happen to think you can trade it to.

Rallies that make no sense to many can make a lot of money for a few. K&C's Trading Rule #1 (of more than 3 dozen, each learned the hard way): Money flows from the many to the few for a reason, over time, every time.

In any game involving skill the longer you play it the more certain that only one at the table will have every single dollar or chip. The most confusing rallies seem to last the longest periods of time to make them even more confusing. I think the one thing I'd add to Tony's comments, that I happen to agree with in most ways, is the advantage that a Minyan has, that some of Tony's and my peers do not. Consider using stop orders. They answer a lot of the questions before they're even asked. By the time you figure out if we're in a recession or not, more of the right trades in your book will be left on the more disciplined your selling strategy is, if my trading diary is any guide. Big institutions can't be as nimble as you can. Additionally, a lot of rallies conflict with the very core of our human nature as the "smart money" setting up as better opportunities to make a brilliant call for the eventual turn. My wife always reminds me she'd rather me make money than be right. I have learned that you can make more money in rallies the less you worry about being the one that calls the turn, instead devoting that same time and energy to following two risk management rules with unflinching consistency – small original position size and tight sell disciplines. Then, the turn can call you.

Of course it's not as simple as that, but perversely it's closer than you may think in a game most want you to believe is too complex. I'll take it a confusingly simple step further and suggest that I think you can selectively short right here with tight stops and win also. The key is getting paid enough on either side. Looking for disproportionate odds on either side that pay more than they cost affords you the ability to be wrong more than you're right and still make money. One of my favorite traders of all time that I learned a lot from once said, "It's amazing how rich you can get in this business by not being right."

And finally, a few rambling thoughts to clear off my page so I can put the finishing touches on a wrap-up for MV that I scribbled from the Technology Conference among many NYC meetings I attended last week where I'll attempt to solve this riddle - is it possible to be standing-room-only and un-crowded at the same time? I have chewed on this every day since and will offer my humble opinion from a guy who's been underweight Technology for six years, until this year when that all changed – that yes, it may be.

The NYC trip reminded me of a few things.

  • Don't mention the slowing economy to hotel reservation clerks, they don't have the time (or rooms). The private car drivers had a pretty decent week also, with a taxi strike. I paid about $40 for a mile in my favorite of many "negotiations." In Texas you are called before Congress to testify on gouging fed windfall profits for burning gasoline, in NYC you get tipped for it.

  • I went into the week intrigued by American Express (AXP) and Mastercard (MA) and left with 1 in 5 stores I purchased from agreeing to take credit cards. I'd always wondered why business is better than reported – maybe it ain't reported!

  • I was fortunate to fly in on a friend's Gulfstream and heard from the pilot that global demand for aerospace parts, service and labor is soaring against really tight supplies of each. I've buzzed about this industry all year as conspicuously the strongest in one of the proprietary traps I run inside the market.

  • I was less fortunate to fly home on a commercial airline, but lucky to sit next to a doctor and we visited for 3 hours. He was interviewing for chief of an entire department at one of the finest facilities in the world, in Houston. Simply as he put it, because he was sick of the Northeast. The regional differences that most pundits scoff at eventually never mattering in a housing collapse continue to stick out as very real to me. He will live like a king in Houston (with enough left over for a beach house) for what he's now paying. He is not alone in exploring this arbitrage, where in many cases the salaries are the same, but the costs not even close – not to mention that mobility is growing every day to do the same jobs anywhere in most other jobs besides his. Separately, he confirmed several of my crazy ideas about healthcare being reintroduced to capitalism and why it has been my firm's largest net increase in longs this year.

And what was most clear on the trip, and most fun, was hanging with the MV crew although never for long enough. They are just as fine a group as you could hope to be associated with and I'm lucky I'm even a small part of it. They were kind enough to take me to a BBQ joint started by a guy from Texas. It's so rare that I have that opportunity. I did take advantage of the situation afforded to me by dining on cheap meat on a bed of butcher paper – I picked up the tab. They'll get it next time when they visit me and I take them to a New York steakhouse so I know they will be equally comfortable with their surroundings and usurious beef markups.

My sincerest thanks to each of them for showing me a good time. And take it from me, that when you're reading MV and hopefully thinking what great work they do, they are actually even better as people and friends. I don't throw around the word privilege lightly but it is truly mine, to hang with them.

No positions in stocks mentioned.
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