The pain you get from jumping the gun

So I couldn’t help but notice with the current state of the economy, everyone’s shooting their mouth off about having opinions about what’s going to happen. And I find that all kind of interesting, but it’s kind of like asking somebody who their favorite rock band is, is what their favorite song is. It’s somewhat interesting, but I can’t really trade on it. However, there are some of you out there that are fans of certain people could be Muhammad El Brian. It could be Jeremy Grantham. Doesn’t matter to me who it is, but, and, and maybe you’re big fans of theirs. Maybe they they’re super bright people. They articulate in a way that things resonate with you. And then over time, you start to develop your own theories about stuff. So keep this in mind.

Remember that there are three things that can happen on any good trade you have. As far as the financial outcome is concerned, you have good luck, bad luck, good timing, bad timing, good analysis, bad analysis. So if you wanted to make, say, for example, a bullish case for stocks, because you think all the upcoming rate hikes are otherwise already priced into the market. And you put your bet on. What could happen? You could have a market crash that would be bad luck. You could have bad analysis where there is no bounce and the market keeps going down. You could have bad timing in that. The market in the short run goes down after you’ve already made your long bets and then recovers. So I remember Paul Tudor Jones saying “price moves first, fundamentals follow.” There’s a way to trade that type of ideology.

If you start with your ethos or a fundamental point of view, and then come to the market to trade it. I remember Jim Rogers came to Santa Monica for a speaking engagement. So I met up with him afterwards and we were hanging out. And he said here are some of the things that I’m doing. And he goes, “I realize I might be a little bit early, but that’s my style – it’s like, when I’m wrong, it’s because I’m too early. But I temper that with betting really, really small.” And an example of that is like, if you put down 1/10th of 1% as an initial stake, knowing that you’re going to add, and the thing moves against you, even by a whopping 50%, you’re only down five basis points on your overall portfolio. So that’s how you can stomach being early, as you have to bet small. I got an email from a nice guy. He’s a follower. And he said “I see the semiconductors are off big in the aftermarket.” And my first response while not putting a whole lot of thought into the question was, “well, they’re all in downtrends. So you wouldn’t have to worry about the thing being down against you in the aftermarket, because you wouldn’t buy stocks that are in a down trend, right?”

Unless you’re trying to get cute and be a bottom picker, which I don’t advocate right now, if you’re buying things that are in up trends, the way you could mitigate some of the risk is to position size for what you would think would be a worst case scenario. That’s how you would handle that. So in the same breath here, you might have strong opinions about the world economy, the US economy, or whatever economy it is that you’re looking at. And you might want to put that theory to work as far as an investment or trading thesis. Well, what I would do is wait for the market to actually start moving in the direction that would kind of conjugate with what your thesis is. There’s no heroism in being early.

…Unless you’re betting again, terribly small, like Jim Rogers said, because what could happen is you could be right eventually, but you might have to be early and endure. Who knows what? Five, 10, 15% drawdown before the rest of the stuff kicks in. So my whole take would be like, have your thesis have your theory, but wait for the market to give you the thumbs up that it’s going to start to move in the direction of your thesis. Otherwise you’re trying to jump the gun. You might have a fear of missing out. You might have a a little ego thing going and that you want to prove everybody wrong, which, okay, I’ve been there, but that’s typically not a way to make money. Now, if markets are going down, wait for them to consolidate and then start an up, move, wait for that breakout. Then you put your strategy to work. You see, for example, if you think there is going to be a bounce, wait for the bounce to happen. Don’t try to guess when it is. It’s very difficult to do.

And there’s several ways to do that. If you’re a fan or have a book a couple books by Victor Sperandeo – he has the 123 Reversal – he has the 2B Reversal. So there’s a few ways to look for that to happen, where you can actually see evidence that there are other people who are thinking the way that you do. There’s nothing really to be proud about if you are the first one. What are you going to do with that? And how much it’s going to mean to you financially – 1%? That’s not worth it to me. It’s not worth taking on the risk of losing 10% to make an extra 1%, because you’re going to try to time the thing exactly. Look at market structure. If you have the time you think any of these episodes have resonated with you, please consider going to Apple Podcasts or whatever, and leaving a short review. Doesn’t have to be War & Peace. You can leave a couple sentences and let other folks know what you, how you benefit from the show because they might benefit. Also. Thanks very much for being here. Folks. I will see you tomorrow.

This is a computer generated transcript.

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