A LESSON IN TRENDING MARKETS AND INVESTOR FORGETFULNESS
My posting on December 17th entitled, "The Most Important Chart I've Posted This Year" lived up to the title. We're fairly close to moving above 1320 on the S&P 500. By the looks of things, it seems that most fund managers, investors and pundits have missed out on this January rally for the most part...myself included.
The entirety of the Twitter and blogosphere has been taken over by a short-term minded pseudo investment class that enjoy the analytical process more than the fundamental reason people participate in the capital markets. That is, of course, to make money.
In the late 90's and early 2000's there was an entirely different class of investor that ruled an entirely different medium of communication. Back then, it was message boards and chat rooms that allowed people to communicate their ideas. There were colorful characters that would interact with the vast number of minions who would hang on every word they said. Pumps and dumps were common as accounts were inflated by a fortuitous set of circumstances that allowed fairly inexperienced individuals the opportunity to buy thin stocks at the behest of whatever guru held preeminence at that very moment.
We all know how that story ended. The minions lost a majority of what they had made and instead turned their attention to real estate some years later. The gurus went onto different ventures outside of the markets. Some went to jail. Several stayed in the markets and achieved levels of success that few thought possible.
You want the common denominator of failure amongst both the gurus and the minions who followed them? Short-term thinking. It was a poison tipped dagger back then and it remains a poison tipped dagger today. The guys I know who achieved monstrous levels of success all had longer-term time frames and avoided getting jostled and churned by the markets to the point of emotional exhaustion that leads to fatal decision making. Those who saw failure all had short-term time frames in mind that attempted to navigate each twist and turn to the point of circus like absurdity.
We now have a whole new set of characters who think that irrespective of the market environment it should always treated as a pinball machine that bounces you from one direction to another. That style of investing worked during the second half of 2011. That style of investing would have got you killed during 2009 and 2010, however. That style of investing would have worked during 2004 and 2005. That style of investing would have got you killed during 2006 and 2007.
There is a time and a place for it. I do my best to judge conditions in an attempt to figure out when I should be a pinball and when I should be a bowling ball, simply traveling in a straight line in an effort to knock down as many pins as possible.
From my vantage point, it is time to abandon the pinball mentality and aim for the pins ahead in the most simple, elegant way possible. That way is to invest in companies with a time frame greater than 1 week, 1 month or 1 quarter.
Markets do trend...a lesson that those who traded in the 90's remember very well. And a lesson that those who have been trading during the first decade of 2000 seem to have forgotten.
You know how the market deals with those who are forgetful? Right?
