My inbox is deluged with rants and demands from people who are insisting that This. Rally. Must. End. NOW!

A composite of their emails would read something like this: “How can you sit there so blithely while the Fed debases the world’s reserve currency? Why haven’t you commented on POMO?!? The entire game is rigged, and your just another @%$# salesman for Wall Street!”

Ahem.

My day job is working in an asset management firm. From that perch, I look at the world as a series of risks and opportunities. I am not a political analyst, nor a professional Fed critic. If through my research and analysis I come to a conclusion about a given issue — Bailouts, Fin Reform, Foreclosures, Stimulus — I am happy to share them.

But make sure you understand this much: I consider many other factors beyond the macro. This includes sentiment data, liquidity, market breadth, trend, volume, and valuation. And while liquidity can mean many things, this cycle its been pretty much all Fed all the time. That was what hedge fund manager David Tepper was referring to when he noted the Fed was pouring fuel on the fire. When the Fed sends their minions out to discuss the Bernanke Put, they add even more gasoline to the conflagration.

Some people rush for the fire hoses, but my job requires me to grab some marshmallows and sticks and head over to the boy scout jamboree campfire.

If you are constantly fighting the tape, if you missed the run up and are now whining about it, let me steer you to esteemed technician Ned Davis of NDR. In his 1991 book Being Right or Making Money, Davis tells the story of missing trades, investments and rallies because they did not fit some expectations of his regarding the economy or valuations or other factors. The title of his book and of this post comes from a  more senior trader, who simply asked him: “Do You Wanna Be Right, or Do You Wanna Make Money?”

As to the present rally, it will end (eventually). I cannot tell you if it ends with a 25% correction (thats my high probability bet) or a 55% 2008-09 like crash, or a Prectorian 90% end of civilization collapse. Regardless of how the rally concludes, the folks who missed an 85%  generational run up in equities will pound their chests and say “See, we told you so!” And they will have made absolutely no money in the process.

So for all of you Kremlin Fed watchers, politicos, policy experts and amateur economic wonks, I put Ned Davis’ question to you now: Would you rather be right, or make money?

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Category: Apprenticed Investor, Investing, Markets, Psychology, Really, really bad calls, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

107 Responses to “Do You Wanna Be Right, or Do You Wanna Make Money?”

  1. JasRas says:

    Academic types can be right and not make money, all others must consider why they do what they do. Academics write books, research and publish, so some semblance of “right” is necessary in the job description. Money Managers, Advisors, and the average investors are doing this to make money. There are times when the economics don’t line up with the market. There are times when company fundamentals don’t line up with the market. And there are times when what is happening makes sense. When the Fed is attempting an inflationary policy, things that are sensitive to inflation rise. Fundamentally, there haven’t been large pre-announcements or huge earnings revisions. Economically, the numbers coming out for the past few weeks have been “better than expected”. We have rounded the 3rd turn and are on the final homestretch. Managers are anxious for performance. The bias is up. I think it is pretty basic.

    Could we have a day or two of correction? Sure. But there are toooooo many people looking to “get in” for it to last more than that at this point. Too many people in our office with excess cash, inverse etfs, or underallocations. That tension is palpable. Any downturn will be pounced upon.

    Too many people take the academic approach to investing because that is how it “should” work. Tell me a profession that works as taught in school… I know of none. That’s why there are “booksmart” and “streetsmart” people.

  2. rootless says:

    Economically, the numbers coming out for the past few weeks have been “better than expected”. We have rounded the 3rd turn and are on the final homestretch. Managers are anxious for performance. The bias is up. I think it is pretty basic.

    This as rationale why everyone who wants to make money needs to get in a rally which is increasingly disconnected from economic reality and valuations is bubble talk. It is the fallacious logic with which the greater fools are being baited that will be the suckers at the end when the market is coming down again. There is no other outcome possible than the scenario in which many will lose at the end, since not everyone can be among the first ones at the exits, only some can.

    Some commenters here don’t seem to get this. Of course, everyone who participates in a speculative asset run up feels wealthier and more successful than the ones who don’t participate as long as prices are up, even if this wealth is just fictitious book value that evaporates eventually, like the trillions of dollars of household “wealth” in US that have already evaporated for the last years.

    Whether Barry gets this, or whether he really believes that everyone who hasn’t participated in the “85% generational run up” has been “married to a money losing position”, that I don’t know. If he really believes this he has succumbed to the fallacy of composition.

  3. matdech says:

    Barry, you obviously are not a trader.

    The chart is telling you to look for shorts. This rally does not have a structure to be trusted.

    There are open gaps, bearish divergences,etc.
    Why play for the limited upside when primary support is the July lows?

    So I am short, I am making money, and the chart is always right…..if you bought in the last two days how is that working for you?

    ~~~

    BR: We our judged on a quarterly basis, and we watch our monthly returns, so you are correct when you assume our timeline is greater than 2 days.

  4. JasRas says:

    @ rootless. Pull a sentence or two and yes, it sounds daft. Regardless of doom and gloomers, it is hard to say that economic numbers have done anything in the last few weeks but disappoint bears and bearish thesis, and re-enforced bulls.

    Fools are thoses who only rely on one metric for something as dynamic as the markets. Not only do you have to take into account what you’ve learned in books, but the psychology of humans–humans who are traders, humans that are institutional, humans that are retail…it is a mess.

    You mention there is not enough room for all to exit at the top- only some– yet the opposite of that corollary is everyone can not possibly get the bottom price as well. Everything modulates and if you wait for perfection, you will wait for a long time at both ends. If you purely look at numbers they will betray you just as purely looking at charts… And to think that the market is pure and not driven by some basic things like career risk, greed, fear,etc. is plain foolish. Frankly, most of the time the markets are mostly disconnected from “economic reality”. Perhaps your economic reality is micro and you should switch to macro–or vice versa.

    Everyone who participated in this run up are, in fact, wealthier than those not participating…that is true no matter how you couch the terms. If a person has been participating in GLD’s march upward for the last decade, your feeling of whether that is “real” or “deserved” or “foolish” is immaterial–that money spends, baby, and it spends a lot further than your bond or cd…. The only “real” thing is how much in goods and services you can buy with your stash of cash. If my stash is working hard than yours and increasing in value in “real” terms while yours is stagnating and losing value from a combination of dollar devaluation and inflation, who has more buying power? Who is right?

  5. matdech says:

    Barry,

    Please review this video and provide a constructive viewpoint. It seems very logical. My question to you is that we know the flash crash was not the only reason for the April- July leg lower. Why wouldn’t one play the downside from a risk reward perspective since the upside has so much risk.

    http://www.youtube.com/user/PSAadmin#p/u/0/0WnD99Nxkck

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