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It's not retreating, it's attacking in another direction--Combat Investing
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For any active or former military SLO players out there, I would like to recall a couple of my favorite quotes from USMC lore: "Retreat, hell! We're attacking in a different direction!" "We're entirely surrounded, those poor bastards. They've got us right where we want 'em. We can shoot in every direction now." -----General Chesty Puller, Chosin Reservoir, Korea, 1950, when told that 10 Chinese divisions had his men completely surrounded. Investing in this market has been very much like fighting a war. Jmcdowell of the Visually Compelling TA portfolio has been educating us on the game of chess and how it compares to the market. I agree with Mcdowell, and raise him one. Making money in this market is like fighting a war. We gain ground only to lose it the day after. We lose ground and fight all day to win it back. There are a lot of casualties, and for those at the top of the leader board, half can be chalked up to luck, myself included. How is investing like fighting a war? In a war, diversification in a key ingredient to winning. Send the Army, Navy, Air Force, or Marines? Hit the target with planes, tanks, artillery, or infantry? Dumb bomb, smart bomb, high explosive, or white phosphorous? We must have a diverse amount of weapons at our disposal to achieve the objective and to absorb the hits as they come. Sure, we can stack our portfolios totally with Ultra Short ETFs (No offense to the players doing it-I am a brother), but when the tide turns it turns big. Diversification doesn't mean a portfolio won't go down in value. Rather, it allows you to absorb the hits until the conditions swing the other way. In a war, Intelligence = the edge. Some people view "military intelligence" as an oxymoron. Intel is still trying to wipe the mud off of its face when it came to the realization that there were no large stockpiles of new NBC weapons in Iraq. The "slam dunk" was blocked by the rim. However, the Iraq situation shows the power of good and bad Intel. You can never have too much information. Knowing the right information at the right times will allow an army to properly deploy forces to meet the objective. Discerning the bad Intel from the good Intel is essential, since there is a lot of bogus info to throw you off. In investing, we also must have access to the right information, and we need to be able to keep from being sucked into the hot stocks at the wrong time. Bad Intel will lose battles, and bad Intel will lose money. In a war, the situation is fluid, requiring constant adaptation. There is a saying that once bullets start flying downrange, all plans go to hell. That isn't totally true, but the original battle plan goes through constant adaptation in order to achieve mission accomplishment. It is impossible to plan for everything that can go wrong. What happens if there is a communication breakdown? Equipment failure? No water, no food, no bullets, the LT got shot, the chopper went down . . . the list is endless. Adapt and overcome is the name of the game. Investing is a fluid situation, with rallies turning into retreats, turning into rallies. Commodities are hot today, cold tomorrow. Have a plan, and plan for contingencies. When there is no plan for the contingency, improvise. Investors make money when the markets go up, and investors make money when the markets go down. It isn't retreating . . . it's attacking in a different direction. In a war, reinforcements can turn the tide. In the battle of Gettysburg, the Union Army could have collapsed and been routed if fresh men and ammunition not arrived to save the day. Having enough beans, bullets, and band-aids is critical, especially when the assault is on. In investing, this means having enough cash on hand to take advantage of buying opportunities. In SLO round 1, I was fully invested on the short side for the majority of the competition. Several buying opportunities arose, but with no cash on hand, I could either let it pass me by or I could lock in losses of other holdings to obtain the funds. Most of the time I watched. So far in SLO round 2, I have kept anywhere from 50k-100k in cash with at least another 100k plus in currency and bond ETFs, ready to be cashed out to fund buying opportunities. So far, the cash position has allowed me to take advantage of several swings on both the long side and the short side. The currency and bond ETFs are extra "reinforcements" awaiting deployment and making a small percentage while they wait. I have finally reached a point in my portfolio where I am satisfied with all of my holdings and the size of each position. There are a few holdings I am not happy with, but overall I have been able to stay toward the top with long stocks, long ETFs, and short ETFs. Technically, I am mostly short hedging long. My short squeeze picks have been average, with a few moving double digits in a single day, but only getting me just over the break even point. Gatehouse Media (GHS) popped over 19% today, and Crystal River (CRZ) gained over 20% over two days. Both of these were short squeeze picks that popped, but I have yet to lock in a profit. Timing is everything, and missing the buying point by even one day has its consequences. My darling of the portfolio remains FXP, the Ultra Short China ETF. I have been buying and selling small positions in FXP since competition started, and if you like volatility, sink your teeth into FXP. During the market rally on Tuesday, FXP dropped over 20%. That's right, a 20% drop might as well qualify as a crash. It crossed one of my limit buy prices and away I went. I just sold that small position today, locking in a 10% gain. FXP is my friend right now, but can quickly stab me in the back as I play with fire. With my position around 50k, I am still uneasy, but not stressed. When it finally crosses the $110 mark, I'll trim down to a safe 30k, but until then I will be buying and selling at specific points in the range between $80 and $100. I want to take the time to tip my hat to the illustrious KB, the most dangerous player in the SLO, Uncle John for his iambic pentameter on demand, Jmcdowell for his chess, and the Family Man, Ric Bottorf, and big Don Ferk for their constant contributions. Though there are others I have missed, you are not forgotten. The market is out there. Lock and load men, it's killin time. | ||
Comments (9)
Wake me when we fix bayonets and take it to them soft arsed Mortgage debt managers, being a fisherman - I don't mind getting some on me..
Until then we keep low in the foxhole while them sweet smelling fellows in expensive suits take pot shots at us.
Posted by Keith Barton | March 13, 2008 8:02 PM
It's funny you mention the observation of gaining ground in a battle one day to lose it back the next. litterally ten minutes ago, I just mentioned to my wife that I locked in X profits today in our real portfolios only to make the comment that "I feel like I keep gaining and losing the same X dollars". lol
Well, at least by breaking even right now, I'm ahead of the market YTD.
Diversity seems to be serving folks well and I have to find a way to get short term gains on oppossing positions. Seems I should be able to hold the long and shorts and profit take from each side as needed. Have yet to find the right parameters.
Good job posting,
Uncle John
Posted by Uncle John | March 13, 2008 8:37 PM
Johnnie RE-Coyle,
Perhaps you are Unaware of the PathFinders, who land in gliders or parachutes behind Enemy Lines and are Trained to be "Surrounded" all the time - in all directions. Custer just lacked talent in that regard.
The purpose of WAR is to break the enemy's WILL to fight. Wars are won & lost - in the will !!!
It's a MIND GAME.
Just like the Market O' Stocks !!! Not So ?
The Market can and does Wear Out & Scare Out those who lack the Mental Toughness & Discipline that it takes to be a battle-scarred but Decorated & Celebrated Marketeer.
Lock & Load & HUNKER Down.
Targets of Opportunity abound - Shoot @ WILL ( whoever he is) !!
Right now it's pretty much of a SitzKrieg for me as well.
The Tide is moving all boats UP & Down in Synch.
When things settle down, the good will out - the new 'Leadership' will establish itself.
This is one reason why I like stocks that pay Dividends - I get PAID to wait it out.
It's almost Spring - Cherry Blosom time & Cherry-Picking time as well.
My Market Mantra MOTTO : It's NEVER as BAD as it seems and NEVER as GOOD as it seems either.
All good traders must also KNOW intuively
that the Market must VARY ( UP & Down ) for
money to be made. That's the name of the Game.
There's also been too much style-drifting "follow-on" trading - zigging when zagging is indicated. I call it Churning & Burning. Do that and you'll wind up Tagged & Bagged, Soldier.
Don Lee Ferk ( fka VikingWarrior )
PS :
I hate to "SPRING" this one on you, Coyle
but Jubilation T. CornPone ( Unshaven & Shorn Pone ) saved the day by Attacking to the REAR in the Li'l Abner play & movie.
I'm going to take Li'l Abner's job for the duration - Matress Tester. It'll be easier for Daisy to chase ME that way.
Here's your "War Flick"
Jubilation T. CornPone
http://www.youtube.com/watch?v=OzDhIr2jUVM&feature=related
http://www.youtube.com/watch?v=OzDhIr2jUVM&feature=related
I love the SMELL of Cordite & NaPalm on the Bloody Morning after.
KB is still trying to "UNload" that Re-Gifted Cologne of his - spraying it on the enemy and such. He's the PePe Le Phew of Mor[t]al Kombat - his Bait STILL smells fresher than he does - You can SHARE a FoxHole with him - I'll hold myself in Reserve in the Rear - Like OddBall ( Donald Sutherland ) in Kelly's Heroes -- Catch a few Rays , drink some Wine, man. Hell is for Heroes, "Volunteers" & Bucking for Rankers !
Posted by don ferk | March 14, 2008 1:39 AM
Interesting post, I've been thinking a lot about diversification lately. I agree that it's important for a choppy market, but I'm not so sure it's best for the SLO contest. The top 5 have been dominated by focused portfolios: either the very short, or the gold bugs, or the energy chasers. Like you, I hope a diverse portfolio will remain standing when those sectors pull back, but SLO could be over by the time that happens. Perhaps the best SLO strategy is to ride the hot wave and, with a little luck, jump off before it crashes...
It also strikes me that nearly all of the "hot" sectors are plays on the same theme: the falling dollar. If the dollar gets a bid, what will happen to gold, oil, and other commodities? How much speculation is really in there? I don't know, I'm wondering...
Posted by thestocksurfer | March 14, 2008 3:24 AM
Tday is one of those days that makes me think of Chesty Puller. I put what little cash I had left into action in the SLO, where I am all long.
In my personal portfolio I closed one of two remaining short positions and sold a sprinkling of puts.
There is a military term for retreating forward, I forget what.
Tom
Posted by Thomas Armistead | March 14, 2008 2:46 PM
Excellent post. 3stars for this.
Posted by Raju Dantuluri | March 14, 2008 7:48 PM
No it is not a ghost !!! It is DuffBeer to come to
your rescue. This market makes me feel like
I am back in Na Trang ,airbase surrounded by
VC up in the mountains lobbing in mortars and
other exploding stuff.
Since the AC130 specters are busy in the middle east
I managed to borrow an old AC47 spooky and a AC119
shadow to run some close air support for you guys.
They are slow and noisy but stock up with some
fire power. I am certain we can clear the enemy and
make the fishing so much easier. This will be like old times
You grunts howler which wakes us alert crews upand then we come in with those mini guns and cannon blazing.
KB would you like the mortgage lenders taken out first
or rather it be the bankers , hedge funds,appraisers or even the Realtors(hey I am one of those). These planes carry plenty
of ammo. After a mission and debriefing it was off for any kind
of beer you could find.
Cheers, DuffBeer
Posted by duffbeer | March 14, 2008 8:45 PM
RE:"There is a military term for retreating forward, I forget what."
You might be thinking of the Tai Chi move "Repulsing the Monkey". I've heard the monkey symbolizes fate. The move and term are really a propos in this bear situation.
Posted by toroandbruin | March 16, 2008 10:53 PM
Johnny Re-Coyle,
The Best Case of a 'Tactical Retreat' was the Classic Battle of Issus in 333 B.C.
Alexander ( the Great ) faced off against the Persian King Darius II in a wide valley
with a River behind him ( no place to RUN ).
Alexander was vastly out-numbered and out-gunned ( he had NO heavy Calvary and few light Cavalry )
He sent all his Cavalry around his left flank to engage Darius' Horsemen - then they veered away in what looked like a ROUT - Darius Cavalry gave chase.
This action removed Darius' Calvary from the Battlefield proper.
Alexander then had his Center Phalanx attack and engage at the center. But, on Command, they fell back in what looked like
another ROUT. The Persian Troops gave chase right into the gaping open maw in the center of Alexander's lines as Alxander moved his left
and right flanks to form a long GAUNTLET. The Persian troops in victorious un-disciplined chase kept funneling
into the Resistance-less Pocket. The Retreating Center then turned and closed the NET. The TRAP was SPRUNG,Coyle !!
Darius troops were crowded in the center of the trap ( packed in like Sardines ) and were not available to actually fight. Some were trampled to death, others were found quite actually with their heads in the dirt - trying in vain to escape the HORROR by digging down.
War is fought on the Cutting Edges. Not So ??
The Persians were in fact Annihilated. Just Butchered.
In addition to having disciplined troops, Alexander had another factor that contributed
much to the Victory. There had been a Prisoner exchange a few days before.
The Persians had mutilated all the Greek Archers by cutting off their Index and middle fingers so they could never pull back a bow string again.
This was the Origin of the Vee-for-Victory
sign as was used by Winston Churchill. Right before the Battle started, the Greeks in Unison showed the Persians there V "finger-Wave"
You can read Sun Tsu's "Art of War " for other such lessons and check out Shaka Zulu's Tactics at the Battle of Gqokli Hill as well.
I think that "Repulsing the Monkey " is some kind of Funky entry in the DuffBeer Kama Sutra. Who needs that kind of REJECTION !!!
Don Ferk ( VikingWarrior & quasi-Military Historian )
Posted by don ferk | March 17, 2008 3:42 PM