My religion

I'm not going to talk about the debt ceiling "crisis" because I'm sick hearing about it....it's all you hear in the media right now. Instead, I'm going to talk about my stock market religion. I've been playing this game for over 12 years  and I've heard about dozens of theories and systems that attempt to predict the market. You can find thousands of books about technical analysis, fundamental analysis and everything in  between. There's so much information out there and a diversity of opinions that it will make your head spin. Through out it all I have come to realize a few general but important things that have shaped my investments decision making and helped me make money.

1) The purpose of the stock market is to make fools of as many men possible. The stock market cannot be easy to play. If it was, nobody would work "real" jobs which would make the stock market impossible to exist.  So, it should come to no surprise that the overwhelming majority of people who play the stock market lose or hardly make much at best.  It also means that anytime an indicator, system, guru or a particular outlook on the market becomes popular - no matter how successful in the past - odds are high it will fail/be incorrect.

2) The retail investor and main street media ranks highest as the dumb money.  They are the last ones to realize/believe when there's a trend in place. They are ignorant and rely heavily on  lagging economic indicators. They form opinions/make decisions based on "after the fact" events failing to realize that the market only cares about what's ahead not what's behind.  They are emotional making all of the mistakes you will see in behavioral finance textbooks.

3) Play the big trends/themes and avoid short term trading. The shorter the time frame the more random the market is. Not only that, but big money is made riding the bigger trends. The legends such as Buffet, Templeton and Soros made huge money because they bet on  big trends/themes....they didn't trade ST using silly things like fibbonoci retracements and elliot waves. Most people out  there who play the market appear to be ST traders and thus losers. These guys are no better than sports gamblers. I'm sure there are a few successful ST traders out there but by far most of them are losers as the stats show.

There's several other things I've learned but the above 3 are the major ones and throughout these pages I've been preaching them.  Because of it, I have been a LT bull since the summer of 2009 while media and the popular "gurus"  seem to have been doing everything they can to keep you out of the market since that time. I know it's hard to be a LT bull during times like this when there's so many problems but you have to keep in mind that all throughout history the best time to be LT bullish was when there was problems because expectations are so low and there's a lot of buying power on the sidelines.  As these problems get resolved or turn out to be less than feared the market rises in response as expectations rise and new money comes in. When's there's no problems out there that's when you should be worried because expectations are high and everyone is pretty much all in.  Remember 1999? A "new era economy" with 3% unemployment and government surpluses as far as the eye can see. Of course, everyone loved to invest for the long term back then.

So, what is the message being conveyed now based upon these 3 pillars of wisdom? Much of the same....it suggests the correct position is to still be LT bullish since the doom and gloom is thick as it ever was, retail continues to be skeptical and bitter and yet the stock market is not much off it's bull market high. However, market action of late is no longer in a rising, grinding uptrend like you tend to see in bull markets which is a caution flag but not a red flag because this action is normal during consolidation phases much like how we saw last summer. Some are saying we are seeing bull market topping behavior but I have strong doubts about that... but it warrants to have a wait and see approach here given the sloppy market action.

I see a lot of people out there who are so hooked into the doom and gloom cult permabear cult. I'm quite sure a lot of these people were the same ones who got burned in 2000 by the tech crash or from the crash of 2008 and became bitter ever since.  It seems nothing will ever turn them back to being optimistic about anything until they see a complete collapse like in the early 1930s.  It's easy to get brainwashed by the permabears especially if you are bitter about losing as a long. They can provide some pretty convincing arguments to feed your bitterness but you have to keep in mind that a lot of these guys have been saying the same shit since the 80's and 90's. They have constantly underestimated or failed to see the impact of new growth industries.. They have constantly underestimated the willingness of the government to step in with aggressive counter cyclical policies during recessions. Lastly, they dogmatically believe that such and such indicator  - whether it's p/e ratios, book value or some other measure - has to reach a certain level before the market is a buy. They fail to realize that the goal posts can move or that it can take a few market cycles before their levels are reached.

I know all about the permabears way of thinking. The first time I became LT bearish was from the summer of 2000 to the summer of 2003. At one point I almost became brainwashed like most converts do but I was able to snap out of it by the summer of 2003 when market action was telling me that a new bull market may have began.  The market was suggesting to me "new bull market!" while the permabears were telling me to dismiss the move as just a bear market rally. I turned my back to the permabears and bet against them.  In hindsight, this was like passing a big test to get to the next major level on the way to becoming a good investor/trader. From that point on, many of the bears I held in high regard were severely downgraded. I still respected some of them though but I came to realize their broken clock, egotistical, dogmatic and inflexibly attitudes. I didn't go from permabear to permabull either. I came to the realization that it's not wise to be perma anything and that you should just seek to be on the winning team willing to switch sides immediately and let market action be your guide - new bear and bull markets tend to behave in a particular way which coincided when certain macro and sentiment conditions were in place. Knowing this helped me to successfully distinguish between a new trend change vs a correction in an ongoing trend.  I really hope that I can continue to read the market correctly like I have been. I'm sure there's going to be fuck ups along the way but hopefully I can make the appropriate adjustments to get back on track if I do.