Increasingly our culture has become addicted to processing information. The flood of information makes people connected when in fact they are more disconnected than ever. The connection people desire can only be attained through quality not quantity. The deciphering of the signal from the noise. Instead it seems that individuals who are not the least bit stale-minded are on a never ending quest for quantities of information that they not only are unable to filter correctly, but in fact keep them detached from any consequential outcome. The noise has become the signal, without consideration for the necessity of what is being ingested.
This confusion due to an overabundance of information has a chronically negative expected value proposition in a bull market. The reason the expected value is negative is due to the fact that during a bull market the duty of an investor is to sit until the bull trend comes to an end. The value creation proposition that is brought on by ever increasing market capitalization and multiples can only be maximized through an approach that fears losing one's position more than any other emotion.
Instead it seems that investors are hell bent on avoiding the next drawdown in their portfolio through cute acts of trading bravado that inevitably leave them in a disadvantageous position relative to the market. An investor in a bull market must manage drawdowns, not avoid them. It is just as reckless to have liquidated a stock portfolio on October 10th due to the fear of an impending bear market brought on by governmental woes and fears of a new bubble, as it is to allow a 10 percent loss to turn into a 30 percent loss in a position that is mismanaged. In other words, the threat to profitability with the act of being out of a bull market is equally as destructive to the potential of a portfolio as it is to have inordinate losses.
The act of attempting to preserve equity during a bull run by timing every turn and escaping each drawdown is reckless conservatism and amateurish. Over a long enough period, the expected value of avoiding drawdowns becomes an even proposition at best due to the fact that the market cannot be consistently timed. It is inevitable that an investor will miss a series of upturns due to mistiming reentry.
The simple act of sitting tight and treating one's positions as gold is the highly recommended path of action. I know, it doesn't lend itself to the swashbuckling image of a trader with 8 screens flashing information that needs to be processed, digested and acted upon in seconds. The act of sitting tight also doesn't lend itself towards the processing of an abundance of information because that information will naturally lead an investor astray. The act of sitting tight, however, is the most profitable means of taking advantage of a bull market.
Drawdowns will come. Profits will be given back. The pullbacks need to managed, not avoided.
There is no one way track to success in any endeavor. It has always been confusing to me as to why market participants expect this business venue to be any different? Additionally, there is very little in the way of success that doesn't come with patience. The grind. The insistence of market participants to turn $10,000 into $10,000,000 in 24 months through various cartoon like strategies is astounding. This isn't Looney Tunes. You are in the real world facing real adversaries that will play against every piece of intuition and every whiff of raw emotion that you emit during periods of fear and greed.
Embrace what this bull market is at its essence: A value creation machine that is expanding through every barrier that investors set for it along the way. Why interrupt such a mechanism through something as ineffectual as thought?
Thought didn't pinpoint the beginning of this bull market and it certainly won't pinpoint the end.
