Fake salmon

There's no shortage of drama in the market right now. Here in Canada, the collapse of Sino Forest and RIMM have been dominating the financial news. Famous hedge fund manager John Paulson who made a fortune betting against subprime in 2007 has been taking a licking this year due to his holding in Sino Forest as well as financials such as Bank of America and Citigroup. He also made a large bet on Hewlet Packard which has also been a dud so far.

Then there's RIMM. It wasn't too long ago when analysts and pundits were bullish on RIMM because of it's cheaper valuation vs Apple along with the introduction of playbook to act as an upside catalyst. Turns out playbook ended up being downside catalyst because of it's problems along with RIMM's continuing eroding market share of the smart phone market. RIMM lowered guidance yet again and now with the stock being down about 60% in just a few months, when even my grandmother is aware of the problems facing RIMM, all the pundits and gurus that come on TV hate the stock and call it a value trap and say you should sell or avoid it. Gee, thanks for the advice fuckfaces and no, I don't or ever have owned RIMM.

My point here is that you have to be your own guru. I've said in the past a few times. No matter how great some guru has been in the past, he/she can easily be a goat the next day. Amateurs learned the hard way worshiping the words of Roubini, Prechter and the permabear crowd who earned fame calling the crash. Now you can add Paulson to the list of gurus turned goat.

Remember folks, these people are just human and humans are imperfect beings who make mistakes and can get blinded by ego and bias no matter how smart they appear to be. Some of these gurus like Pretcher are just clowns who were broken clocks that finally got it right....you should do your homework on the track record of these guys....you'll find that many are less than enviable. Also, making a bet or a call on the market requires some luck as well because the future can't be predicted with certainty. The best you can do is size up the odds correctly and so if you make a bet with odds 80% in your favor you can still get it wrong and lose money even though you were correct in making the bet....this is just like in poker when you have someone dominated with AA vs 10,10 but still end up losing.

YOU MUST BE YOUR OWN GURU. Learn from others who have had success but take what you learn and incorporate into your own thinking. You must also have the confidence in yourself to disagree and bet against someone you respect if you have good reason to feel this way. For anyone who reads these pages and considers me one of those people, it applies to me as well.

Now, onto something totally different. I want to share a little story. Today my wife asked me to pick up some salmon at my mom's house that she had saved in the freezer. So I picked up what I thought was the salmon and gave it to my wife. My wife took out the salmon, let it thaw for a bit and then noticed something odd. My mom had told her that the salmon was marinated but it appeared not to be and so she marinated it herself. She also noticed the texture was unusual. After grilling the salmon on the BBQ my wife sliced into it to discovered it was rather tough for salmon... and then before she even tasted it, she realized what was going on....it was chicken! "I knew something was wrong! And why didn't I realize that it had no fish smell?!" she said.

Can you see where I'm going to go with this? Our biases and predispositions can cause us to fail to see things for what they really are when it's normally so obvious. My wife was suspicious about the "salmon" that I had brought home right from the beginning but she was made to believe that it was indeed salmon and so she ignored her observations that something was fishy (bad pun). Had she been given the package without any suggestion as to what it was, she probably would have realized it was chicken right from the get go.

This sort of thing happens with investors and traders all the time when the market changes mode from bull to bear and vice versa. Take the situation when a bear trend had been in place for quite some time but then heads in the opposite direction for several months. What will typically happen is that news headlines and popular financial media are still suggesting that the bear trend is still in place or that the new uptrend is just a "phony" interlude destined to failure at any moment. Meanwhile the market continues to go up and up and up for months and months on end until it becomes painfully obvious that the trend had indeed changed! In hindsight the masses then realize how foolish they were for failing to see how the market had changed when all along it was yelling and screaming that it had. This is what happens when you trade with either bias, bitterness or ignorance. Is it possible to truly be free of these flaws and see the market for what it really is? I don't know...but you better do your best to do so or you will get punished in due time.