SHORT-TERM THINKING WILL HAVE YOU SLEEPING WITH THE FISHES
"And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance." -- Reminiscences of a Stock Operator by Edwin Lefevre
This famous quote by Jesse Livermore is perhaps the most valuable piece of information from this investment classic. I bring it up because of the epidemic of short-term thinkers that participate in the financial markets today. I have no doubt that most of them are unsuccessful, as the odds become increasingly difficult to overcome the shorter your time frame.
The access to infinite information that we enjoy has also caused individuals to become short-term in their frame of thinking. It's the mental plague of modern day society. We do not stick with any thought or idea for longer than a few minutes before we move on to a new piece of information. How can this trained form of thinking not end up seeping its way into our investment or trading regimen?
The answer is that it cannot. It makes its way into your trading decisions, often times without you knowing. It comes in the form of overactive trading, excessive analysis, indecisive thoughts, erratic ideas and loss of capital.It makes the financial markets more irritating than anything else. If short-term thinking doesn't ruin you today, I promise that it will tomorrow. The duty of the modern day investor is to filter out information and only rely on the pertinent facts.
The facts as I see them today:
1. The financial sector in the United States and Europe is effectively broken.
2. The Fed and ECB realize that their influence in waning and will be much more selective in their actions. Failure is now an option. Equity investors are allowed to sustain losses.
3. Earnings estimates for the S&P 500 are continually being adjusted downward. That guy you see on TV talking about how attractively priced stocks are based on forward earnings estimates is using phantom numbers to make his point.
4. Technically key sectors around the world are breaking down significantly.
5. Bond yields are telling us that a double dip recession is a foregone conclusion.
With respect to point # 2, I think that investors will get a taste of this when the guy with the beard in Jackson Hole, Wyoming doesn't announce anything significant in terms of throwing the markets a lifeline this week.
I'm staying focused on the bigger picture. Continuing to hold FAZ, EDZ, SPXU and 75% cash. Short-term snap back rallies will come. However, the downside remains significant. We are in the early stages still. Sitting tight.
