THE STRATEGY OF NOT CARING
Much like anything else in finance, every tool for investment whether fundamental, technical or emotional has its uses and a season for that use. Fear is not always a terrible trait. It could have saved investors greatly in 2007 - 2008. Greed is not terrible either. I know many greedy investors who have done extremely well in the markets. There are no Ten Commandments for success in finance. It makes for a good title to sell books to the hopeful (another trait that can be used sparingly), but the fact of the matter is that the fluidity that is investing will never allow single point of fundamental, technical or emotional success to have an uninterrupted, peaceful existence. Caring is an endearing trait that is celebrated for good reason. That is perhaps why so many individuals will bring the act of caring into perpetuity with them to the realm of investing. It simply doesn't transfer. Investing when approached properly is a simple game of making decisions that have a positive expected value over the long-term. The only way to gain knowledge as to what constitutes positive expected value is through experience. Those who are consistently successful in the markets after 10, 15 or 20 years, have naturally found a path towards decisions that have a positive expected value, whether they realize it or not. Most will chalk it up to dozens of different skills they have gathered. But the essence of what they are doing is good decision making on a consistent basis. The problem with consistently caring, as so many individuals believe it is their duty to do, is that it leads to various peripheral evils that will eventually all gather together like a Chinese sandstorm, collapsing an investors ability to make decisions that have a positive expected value. Those peripheral evils primarily have to do with over-thinking situations that require no thinking at all. When you strip away everything and I mean EVERYTHING from the markets, the situations that an investor faces become abundantly clear. What investors so often fail to realize is that 95% of the price movement that is witnessed on a yearly basis does not require judgement of any sort. It simply IS. This means that out of the 250 or so trading days that we experience each year only 12 of those days (keep in mind, I am talking about investors, not traders here) require our effort or judgement. The rest of time the markets are simply filling space through random movements that are meant for those who care in perpetuity, which is the vast majority. After all, entire companies have been built on the...
APRIL PERFORMANCE SUMMARY AND LOOKING AHEAD TO MAY
*This is my monthly letter to investors summarizing the month. The full PDF version of the summary, including managed account performance data as well as a few added components is only available via email. Return data will no longer be published as a part of the summary. If you would like to be added to the monthly email list, please contact me at mail@t11capital.com Download (PDF,...
PORTFOLIO UPDATE: ROTATION STATION
A couple of notable updates here. First, on April 15th, I tweeted the following: IWSY was reinitiated in February after being out of the portfolios for several months. I continue to believe the company is being primed for acquisition. They are IT in multimodal biometrics, as I've discussed in previous reports, including the original report from March of last year when the stock was trading for less than a buck. My opinion of the name hasn't changed. What has changed are the opportunities that I have discovered as the bull market continues. As these opportunities develop, I become a rotation station. If I discover an opportunity, for example, that offers 20% risk in exchange for 400-500% reward, with my being able to have a clearer understanding of the variables on both the upside and downside, then I will switch into that opportunity without hesitation. IWSY no longer offers that type of risk/reward equation. Downside here is negligible, but upside is likely capped at 100-200% from here. I can do better. Bringing me to the next update. Earlier today I tweeted the following: I had a very difficult time accumulating the position I wanted in KFS. I am sure I was competing against 1 or 2 other institutional investors who wanted shares of the company as bad as I did. I didn't mind chasing it up from 4 to 5.30. My average ended up being right in the mid-4 range. The research report for KFS is available here for those who haven't already checked it out. I'm looking at this opportunity as a multi-year deal for myself and my investors. The only way to get the full experience in KFS is to approach it from a minimum of a 3 year time frame. Anything else and you are simply cheating yourself out of what is being assembled here. There is no sector I am more bullish on over the next several years than financials. Within the financial space, I am most bullish on property & casualty insurance. The insurance sector is special in that it can provide a tremendous amount of leveraged gains that result from the virtuous cycle taking place of a generally healthy financial market; operating structures that have gained tremendous efficiency post-financial crisis; a robust M&A environment being led by deep pocketed private equity firms; net operating losses that have been carried over from the crisis. Well run insurance companies will essentially become compounding machines over the next several years. That potential is not even close to being factored into a company like KFS's stock price. In fact, KFS is only trading 26% above its 2012 high, when...
NEWEST RESEARCH REPORT: 11 PAGES ON KFS (KINGSWAY FINANCIAL)
T11 Capital Management is currently long KFS at an average cost in the mid-4 range. Please see disclaimer at end of research report. Download (PDF,...
HERE ARE THE ONLY TWO CHARTS YOU WILL NEED FOR THE REST OF APRIL
Simplification of seemingly complex situations in the markets is key to longevity in this business. If a situation cannot be simplified to the point of being explained on the back of a paper napkin then it is likely an endeavor of ego, pride or false hope. In any case, the situation being constructed or deconstructed will have a negative expected value right from the onset. In the spirit of simplicity being the basis of proficient market analysis, I present to you the only two charts you will need for the rest of April. Here is the Nasdaq Composite followed by the Nasdaq 100. Behold: click chart to enlarge...
4 CHARTS DEMONSTRATING A MARKET THAT IS HOME FROM THE HILL IN THE WEEK AHEAD
click chart to enlarge
WHAT THE IPO MARKET AND PHASE 4 STOCKS ARE REALLY TELLING INVESTORS ABOUT A MARKET TOP
What follows is the "Looking Ahead" section of my monthly report to investors to be released in the coming days. There are enough misconceptions, misinformation and downright naive analysis floating around about an impending top or potential bubble forming that I felt this deserved to be separated out on its own. Being that gauging short, intermediate and especially long-term tops has become an obsession among the most recent generation of market participants, it is worthwhile to occasionally divert attention away from the micro and look at this secular bull market from a reasonable, measured perspective. This perspective relies heavily on lessons learned from secular bull markets of the past, with a special focus placed on the secular bull of the 90s. Why the 90s? It was the last innovation led rally that was guided greatly by technology, with an emphasis on new and emerging companies revolutionizing the way we communicate personally and professionally. It was a rally that was misunderstood, doubted and criticized nearly the entire way up. It was a rally that was resilient through numerous seemingly disastrous macro events. It was a rally that was also resilient through consistent and persistent overvaluation. The bull market of the 90s was born from two distinct negative events that influenced psychology (and monetary policy, for that matter) greatly. The 1987 crash effectively ended the secular bull market that started in 1982. The psychology of the investor class was further damaged by the recession of the early 90s that was exacerbated by events such as the Gulf War, rising oil prices, high unemployment and substantial deficits. These condemnatory events separated only by a few years resulted in a dramatic shift in investor psychology from what was the pervasive bullish sentiment of the mid-80s. This foundation of skepticism and fear provided the perfect foundation for what would be a historic rally throughout the 90s, taking the S&P 500 up some 300% during that decade. What has occurred from 2000-2012, effectively set the stage for what we are experiencing now. There is no possibility of a substantial secular bull market being born from a point of outright optimism. Secular bull markets are born from the defeated psychology of investors who have little hope or desire of creating anything substantial out of the financial markets. Instead they have come to focus on cash preservation and alternative asset classes that are driven by the desperation of the avoidance of further financial pain. Due diligence becomes a choice phrase. Risk aversion becomes a wise choice. There is no deviating from this path until the reality of a bull market becomes so cemented in the investors mind...
