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Surfers are philosophical by nature. I'm not sure why that is, but I haven't met a surfer who doesn't think of catching a wave as a profound experience. Each wave is a new opportunity for the perfect ride, and each wipeout contains an important lesson. The same goes for stock market traders (although traders tend to be a bit more hyper, due to the faster pace, extreme levels of coffee, and lack of time in the sun). But here is the key commonality: The journey is more important than the destination.
[Note: Todd Harrison of Minyanville says this all the time, so I want to take one sentence to again remind everyone how insightful Minyanville is not only in terms of financial education, but also in personal and professional attitude. They just won an Emmy Award, and are more than deserving.]
Back to stocks and surfing and my point. The point is, the ultimate destination (making money) is not unimportant, but you'll never get there if you don't concentrate on one wave (one trade or investment) at a time. The waves are bigger and badder than usual in the current stock market. For many investors, sitting on the beach in cash is the safest approach. For many traders, however, this is an exciting (though challenging) environment.
Coming into the week, I was open to the idea that the lows for 2008 are in. But the truth is, that view doesn't affect my trading very much. I think most people have it backward--the long term is more uncertain and less knowable than the short term. Who knows what will happen by January, or by 2010, or over the next 5 years? We know there will be an ocean, but we can only see the next few waves forming, and we can only ride the one we're standing on.
THE WEEK IN REVIEW
After Monday's drop, stops were hit and some long positions were gone. On Tuesday, the market showed strength and I jumped back in, riding to some nice gains. Wednesday extended the gains, but by the end of the day I was growing cautious, and bought a short ETF at a reasonable price. Yesterday, with an eye to the upcoming jobs report, I got more short and less long, locking in gains and preparing for the probability of dismal news. Today we got that dismal news and the shorts are working.
I'm not explaining this process so anyone will copy it (everyone's style should be unique), and I'm certainly not boasting because not all my trades were perfect. I'm simply trying to explain the journey, why I can be bullish on Tuesday and bearish on Thursday. It's not meant to be confusing or contradictory. My overall message is that the waves are fast and furious, and on days that I can't manage risk and move in and out of the surf, I'm on the beach. I will likely cover many of my shorts by the end of the day and head for Margaritaville.
There will come a time when the stock market will offer longer, smoother rides. For now, it's important to simply be careful out there. Enjoy the weekend and check out this guy's journey!
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