Lessons from Investment Gurus

The Most Important Thing

 Successful investing requires thoughtful attention to many separate aspects, all at the same time. 
Omit any one and the result is likely to be less than satisfactory.

The idea of the most important things—each is a brick in a solid wall, and none is dispensable. 

Hello all,

Heavy cash holders (including me) missed a lot of gains this year so far. S&P 500, Nasdaq, Precious metals, Bonds and even Crypto are all up YTD.

Personally, I transitioned to cautiously bull in March because bears ran out of catalysts that will break the market. Market shook off bad earnings, recent Fed hike and regional bank crisis. CPI data next week will probably show continuing decline in inflation. Fed is almost done hiking (probably 0 or 1 more hike). Bonds market is expecting massive rate cuts EOY. Recession expectation went up last month but market kept rising. Q2 earnings will likely not be great but less than feared and market will probably shake it off.

Bears were expecting a market flush and capitulation but it will likely never happen as long as many investors are cash-heavy and have jobs.

I considered waiting until May, after earnings, and start buying regardless of the prices.

If you have not bought already, what is the signal you are waiting for to start buying?

Disclaimer: I am currently 60% cash, 40% stocks. My ultimate plan is to reach 60% stocks and 40% cash by end of year.

Hello all,  Heavy cash holders (including me) missed a lot of gains this year so far. S&P 500, Nasdaq, Precious metals, Bonds and even Crypto are all up YTD.  Personally, I transitioned to cautiously bull in March because bears ran out of catalysts that will break the market. Market shook off bad earnings, recent Fed hike and regional bank crisis. CPI data next week will probably show continuing decline in inflation. Fed is almost done hiking (probably 0 or 1 more hike). Bonds market is expecting massive rate cuts EOY. Recession expectation went up last month but market kept rising. Q2 earnings will likely not be great but less than feared and market will probably shake it off.  Bears were expecting a market flush and capitulation but it will likely never happen as long as many investors are cash-heavy and have jobs.  I considered waiting until May, after earnings, and start buying regardless of the prices.  If you have not bought already, what is the signal you are waiting for to start buying?  Disclaimer: I am currently 60% cash, 40% stocks. My ultimate plan is to reach 60% stocks and 40% cash by end of year.

Todd Smith

To be clear, I’ve been positioned bearish since the end of 2021 (and made plenty of posts in this forum along those lines during that time)

Year to date gains/losses don’t really matter for anyone except hedge fund managers whose comp is tied to this metric. Similarly, there’s no prize for buying the bottom perfectly if we also buy multiple head fake bottoms along the way down

Our North Star should be gains across the full market cycle, not vanity metrics. We don’t know how bad this recession will be - we could see more big credit events or not. I feel a bearish bias is appropriate while we are still reporting worsening economic numbers, companies and Wall Street are still revising numbers lower, and we are still tightening money supply. 

Fade the crowd means using situations like the bank run panics to cover shorts down to a minimum position, and reloading back up when retail investors prematurely get sucked into believing we are out of the woods (or hedge funds panic cover like yesterday)

No one can time trades perfectly, but the tool I pay for (Hedgeye) gives daily quantitative signals based on price, volume and volatility to help contextualize where the market is at and time trades

We can also look at how past bear markets played out and know that we are likely to see more drawdowns of 20+% from here, along with more epic bear market rallies along the way. Howard Marks’ writings are great for providing this context

Another principle that can help with reducing volatility, especially in a choppy market: never be naked long or short, always have hedges on

For example, instead of being simply long or short the S&P, go long the defensive sectors in the S&P (utilities and healthcare) and short the cyclicals that are just now starting to report the reality of the economy slowing (industrials and retail). 

You can still participate in rallies and be less exposed to drawdowns with this approach. At some point once we are done reporting economic gravity and past the start of an easing cycle, I will flip the above and be shorting defensives long cyclicals

To be clear, I’ve been positioned bearish since the end of 2021 (and made plenty of posts in this forum along those lines during that time)  Year to date gains/losses don’t really matter for anyone except hedge fund managers whose comp is tied to this metric. Similarly, there’s no prize for buying the bottom perfectly if we also buy multiple head fake bottoms along the way down  Our North Star should be gains across the full market cycle, not vanity metrics. We don’t know how bad this recession will be - we could see more big credit events or not. I feel a bearish bias is appropriate while we are still reporting worsening economic numbers, companies and Wall Street are still revising numbers lower, and we are still tightening money supply.   Fade the crowd means using situations like the bank run panics to cover shorts down to a minimum position, and reloading back up when retail investors prematurely get sucked into believing we are out of the woods (or hedge funds panic cover like yesterday)  No one can time trades perfectly, but the tool I pay for (Hedgeye) gives daily quantitative signals based on price, volume and volatility to help contextualize where the market is at and time trades  We can also look at how past bear markets played out and know that we are likely to see more drawdowns of 20+% from here, along with more epic bear market rallies along the way. Howard Marks’ writings are great for providing this context  Another principle that can help with reducing volatility, especially in a choppy market: never be naked long or short, always have hedges on  For example, instead of being simply long or short the S&P, go long the defensive sectors in the S&P (utilities and healthcare) and short the cyclicals that are just now starting to report the reality of the economy slowing (industrials and retail).   You can still participate in rallies and be less exposed to drawdowns with this approach. At some point once we are done reporting economic gravity and past the start of an easing cycle, I will flip the above and be shorting defensives long cyclicals