MV Mailbag: Trading vs. Investing
Toddo pulls back the curtain on his portfolio.
This year I have enjoyed reading your missives, articles and memoirs. I have come to really appreciate your stance on seeing things from both sides and try to integrate the same stance into the rest of my life. Thank you for your insight.
I would like to get your thoughts on the W pattern that some are expecting for this bear market and how you plan to approach it. I believe I recall that you put around 25% of your long-term bucket back to work in the upper 600's back in March. What is your target to deploy more of that bucket? I too invested a portion of my long-term money around 700, but I'm still sitting on a large amount of cash because I didn't want to chase this rally.
Professor Cooper is someone who I have also come to respect and enjoy reading. I see that you often refer to comments that he has made about the market and assume that you may agree with a lot of his interpretations. I do. His interpretations of the market are currently calling for a possible pullback to around 836 over the next 2 months. I know that Jeff isn't "predicting" anything, but offering possibilities based on technical analysis. I've got to say, I was really hoping for a pullback into the 600's to deploy more cash. I know that it may or may not decline that much. So, my question is, without trying to "call the bottom" what is your approach for deploying the rest of your long-term bucket?
I'm always honest. S&P 600 was circled to deploy 25% of my long-term bucket and we never got there-that money remains 100% cash. I could lament the "penny wise, pound foolish" miss but that's wasted energy and profitability lies in the ride ahead. Besides, that money has been safely stuffed in T-bills for the last few years so rather than bum about missing a 50% jump on 25% of my holdings, I'm grateful that 100% of my nest egg sidestepped the entire decline (35%, even after this latest lift).
As you may or may not know, I have a unique investment dynamic. While I often reference two buckets-the long-term nest egg and an active trading bucket-there is indeed a third bucket, which is my holdings in Minyanville Media, Inc. I invested well into seven figures (and more than seven years) into my "dream" and while I didn't do it for the money (true story), I'm extremely motivated to generate returns for the investors and staff who believe in what we're doing and how we're doing it. So there's that, and I feel compelled to communicate it as a context for this 'money' discussion.
Circling back to the second bucket-my trading pad-I communicate every step I take on the Buzz & Banter. It's not advice, for I don't know the time horizon and risk profile of individuals in our audience, but it's most certainly forthright in terms of what I'm doing, when I'm doing it and how it's being done.
Old school Minyans will tell you that I can swing the risk bat with the best of them but I'm patient in terms of set-ups. I was aggressively long in February and March (a bit early) and traded from the long side into April and May. During the "channel surfing" the next three months, I "hit it to quit it" and played both sides of the trading range with smaller bets (a scalpel, not a sword).
All the while, I had an eye on the Widow's Peak of a perceived "W" pattern.
As we don't sweep our mistakes under the rug in Minyanville-we learn from them-I will share that I got nicked when the market ripped higher and, coinciding with a business trip, stepped out of the batter's box, tapped the dirt off my cleats, and took a deep breath. There's no shame in admitting it's hard; there's only shame in pretending it's not.
Last week, we spied what I considered to be one of the best risk-reward set-ups of the year. After establishing a substantial short-side bet, I caught an initial downdraft from my entry levels (NDX 1630, COMP 2000), nibbled small as a function of discipline and put it back out (and then some) into Monday's rip higher (as I stepped into my metaphorical bear costume).
I don't profess to know whether this will work-nobody is smarter than the market and if you don't stay humble, the market will do it for you-but with a 2% buy stop (my predetermined risk definition), it's a compelling risk-reward. I understand that not everyone operates with the same stylistic approach so I share my process with hopes that it adds to yours.
To your question, yes, I still believe that we'll see a "W" pattern-a double dip, if you will-all else being equal. Should the dollar meaningfully debase, the uber-inflation scenario becomes increasingly plausible. As it stands, I am 75% confident that we'll see meaningful deflation before that occurs. And of course, seeing all sides, Minyan Peter's "Living L" scenario is well within the probability spectrum as well.
This was not your father's recession. There is no historical precedent. To quote our fallen friend Bennet Sedacca, "Many are referencing history as a guide and I believe we are making history."
I concur, sir. Obscene opportunities will abound on the other side of this ride. I continue to operate through the lens of risk management and financial staying power as we find our way through this prolonged period of price discovery.
This too shall pass, my friend, and when it does, those in a position to prosper will do so in a profound way. The Minyanville mission is to provoke thought and provide our community with the insight necessary to make informed and intelligent decisions.
One step at a time.
I hope this helps at some level, my friend. I wish you the best of luck.
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 firstname.lastname@example.org.
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