Visually Compelling TA

Garry Kasparov discusses Crisis Point in chapter fifteen of How Life Imitates Chess as a time when performing the best matters most. A crisis is neither a disaster nor a catastrophe. Disaster and catastrophe suggest finality. But a crisis embodies a critical moment when stakes are high and opportunity and danger are both present. Kasparov relates this material to his series of matches with Karpov and concludes he performed his best when it mattered most. But the portion of this chapter most related to investing is on the topic of detection.

Detecting a crisis in the making is a separate skill from solving a crisis. Success depends on detecting, evaluating, and controlling risks. Detection is often the most important and is the most difficult of these three. Detection of market bubbles is a clear component in managing investing risk. Detecting a rational bubble from a speculative bubble is even more difficult. Determining the inflection just before such bubbles burst poses further challenge. Bubbles are often accompanied with the statement "but it's different this time" and such statements are correctly ballyhooed by market kibitzers. But occasionally certain investors, when performing their best, really do determine when it indeed really is different.

It is prudent to guard against most of the "it's different this time" fear during a crisis and the "it's different this time" jubilation during a bubble. But my preference is to carefully watch and diligently search in order to detect situations where it really truly is different even though others have yet to notice. When no one is yet saying "it's different this time" is when it matters most.

Comments: View Comments |  Sunday September 14, 2008