March 2009 Vs. April 2013: A Lesson in Discipline
Blind risk is bad risk.
I remember it like it was yesterday. The stock market had crashed and the very existence of capitalism was under siege.
After a sullen stretch of Shock & Awe, I forced myself to not only see the other side of the trade, but heading into that fateful weekend, position for it in kind.
The following Monday, March 9, 2009, I stayed true to my belief that the stock market was in the "panic" portion of our time-tested Three Phases of Leave, which would also serve as the "denial" phase for the bears after they cleaned up on the downside.
On March 10, 2009, I maintained my long bias -- we spoke of risk down to S&P (INDEXSP:.INX) 593 -- and penned several columns sharing my thought processes, here, here, and here. The tape responded with a sharp rally higher; I stayed the course.
On March 11, 2009, we dove deeper, discussing the classic signs of a bottom and the potential for a 20% move higher even at times if We Were Running to Stand Still.
On March 12, 2009, we continued to fight the bullish plight, here and here, and on March 13 -- following one of the greatest games in the history of sport -- I "lugged alotta exposure" into the weekend once more.
That Monday, it was business as usual; as societal acrimony spread throughout the world, we spied Bank Shares Ripping and prepared to take a ride higher on the Matador Express. At the time, Citigroup (NYSE:C) galloped 35% ($0.63), Bank of America (NYSE:BAC) ran 13% ($0.77), AIG (NYSE:AIG) jumped 66% ($0.33) and both Wells Fargo (NYSE:WFC) and JPMorgan (NYSE:JPM) jumped 5% (about a buck each).
The bacon was shaken and the tape was about to blast off...
The next morning, Tuesday, I awoke to a telephone call from a colleague down south -- a stunning, terrible call that at first I thought was a dream. I shared what I could with our community, withholding particulars as a function of respect. Later that evening, with tears in my eyes, I wrote A Tribute to Bennet Sedacca.
Why the walk down memory lane? For one, to remember a special man who left a long-lasting legacy, one that continues to live on through his kinship and friendships. Second, I recall that historic stretch as I was very bullish -- not all in, but trading aggressively from the long-side -- when "life" interrupted, I flattened my pad, flew to Orlando, and focused on the important stuff.
In hindsight, it took me some time to recover my trading feel -- the S&P rallied some 15% while I was away from my turret -- but I didn't, nor do I now, regret it for a moment. As soon as I booked my flight down south to be with the Sedacca clan, I flattened my pad to the penny, reminding myself that "blind risk is bad risk" and "if you're not there to manage your risk, you're at a natural disadvantage."
Fast-forward to modern day. Last week, we painted the current financial picture -- it is The Moment of Truth as Stocks Toe the Maginot Line. This, of course, was shared in the context of some less-than-stellar risk management by yours truly, so in that regard, March 2009 and April 2013 are different. Back then we had seemingly turned the upside cusp and I was making cake when I flattened my pad; currently, we're at an important technical toggle and I gave back a chuck of performance last week.
Be that as it may, and as I've repeated many times over the course of my career, discipline must always trump conviction. As I am scheduled for a total hip replacement tomorrow -- one where I don't foresee an ability to "trade through" as I did last May -- I will be paring my September SPY puts as we approach the aforementioned moment of truth (+/-S&P1600).
If the bulls push through, it's a bullish "cup-and-handle" formation; if they fail, it's the dreaded double top (bearish). See both sides as we continue to find our way, one "step" at a time.
As always, I hope this finds you well.
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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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