When the markets are very strong (and two 250 point gains on the Dow last week constitute strength, in my book), the naysayers re-appear on this forum to "kick 'em when they're down." But there was a real gem posted in Friday's comment section which I'll reprint here in its entirety; I've put in boldface some items I'd like to address:
Let me say I enjoy your daily rants and boasts. The site is a good read.
But I just urge you to come clean with your readers, and admit that you have lost a lot of money over time, and will likely continue to do so.
Study after study has shown that people OVERPAY for puts. Add in your HUGE trading costs because of so many small positions. Then add in the asked/bid spread retail investors pay.
When you're right, and the market is heading down, the put premiums are so huge you don't get anywhere.
And when the market turns up, premiums shrink so fast you get crushed by the falling VIX.
EVEN IN a serious bear market, every counter-trend rally will eat up any gains. You never see those coming, or believe them when they come.
It just doesn't work.
And all those LINES! If you draw enough of them, markets will HAVE to stop at one occasionally. And it's funny how you draw horizontal lines that the market moves smoothly thru a dozen times, and stops NEAR once or twice, and you call it a victory for Fib! If the market NEVER stopped near a fib, THAT would be spooky.
But your claims show a glaring lack of understanding of statistic and probability. Your charts are just Rorschach ink blots. You see what you want to see.
Your history of trades only comprises 6 months of BIG market declines. Every perma-bear would expect to make some money during the last 6 months. Yet if you added in your transaction costs, you likely haven't made much of anything even in this crash!
And you're drinking the cool-aid if you believe for a moment your approach can work in any other kind of market! Which is most of the time.
I had the Guru checker at CXOAdvisory check you out, and he concurred. http://www.cxoadvisory.com/gurus/ He debunks all you guys who CLAIM you make money and good market calls.
So keep posting your thoughts and trades. I acknowledge reading them seriously. When our views on a stock differ, I think twice about proceeding.
But you must know that it's the people SELLING you the puts that are actually making money. I personally sell so many puts that I've probably had the pleasure of taking one of your trades. If so, thanks.
There as a reply to this post, which I'd also like to address, from WorkDog that says:
I don't mean to pile on here, but this post has opened a window to throw out some of the thoughts I've had about Tim's trading. The first being, and I'll ask this to Tim directly, why do you short what seem to be the strongest stocks? To me, odds for success are much greater when I short weaker stocks. The second, what is your exit strategy when a position moves in your favor? I haven't sensed a concrete trading plan for maximizing profits.
The simplest thing for me to do would be delete the post, block the commenter, and pretend it didn't happen. But I hope I have built a reputation for transparency and honesty in this blog, and I'd rather address this head-on than hide from it. So let me address the points in order:
- "daily rants and boasts" – I truly hope my writing can't be divided into those two simple categories. But for rare occasions, I try not to be boastful; perhaps my marveling at some of the cool things technical analysis provides comes off as a boast, but it's nothing personal. I'm simply impressed by what's happening.
- "lost a lot of money over time" – my interest and activity in trading has afforded me a comfortable lifestyle. I don't see why anyone would engage in a money-losing exercise and spend each day talking about it.
- "the put premiums are so huge you don't get anywhere" – hopefully, I am buying positions when the premium is small and selling it when it is big. For insane stocks, like ISRG or BIDU, yes, the premiums are big, so even when the stock collapses, the gain isn't as great as you might think. But still, I make money.
- "all those lines!" – I think this is what I take the most umbrage with. I pride myself on clean, simple charts. 90% of the charts I see out there on the web are completely crammed with studies. It's nauseating. I have a zen-like simplicity to my charts, and the notion that I've thrown pick-up sticks on the charts so that something is bound to "touch" is baseless.
- "comprises 6 months of BIG market declines" – are you kidding? The Dow is only 10% from its highest point in human history. I would hardly say we're at the very bottom of some monster bear market. A huge number of stocks I follow have never been higher. So, sure, if you look at Bear Sterns, it is way down, but the market – especially at these levels – is plenty strong.
- "I had the Guru checker at CXOAdvisory check you out" – err, no you didn't. I am not prominent or famous enough to merit a space on their list. If you are claiming that everyone who makes market predictions is wrong, well, I think that's incorrect. What were you expecting to see – 95% success rates? I frankly think 55% correct is damned impressive. As you can see from my own performance table, I'm only about 50% right, 50% wrong, but the right ways move more than the wrong ones, so I come out ahead.
- "why do you short what seems to be the strong stocks" – it's like the answer that the bank robber gave when a reporter asked why he robbed banks: "That's where the money is." I'm not interested in placing trades on, say, Sun Microsystems. I'd rather take a chance on a $200 stock that I think could go to $150. My trade on ISRG is a perfect example of that. I did great on that trade, and God knows it was a strong stock. Frankly, GOOG was one of the "weaker stocks" that you suggest would have been a better candidate, and we all know what happened to that one.
- "what is your exit strategy when a position moves in your favor" – it totally depends on the chart. I don't have a simple answer. ISRG, again, is a good example – – it fell to a medium-term trendline, so I got out. It could fall farther – much, much farther – but I'd rather exit at what I think is a decent support level.
I hate to give so much attention to a single post, and even though it was kind of obnoxious, it was written with enough intelligence that I felt it warranted a reply.
As for my position on the market right now, I can only say when I look at the major indexes (shown below with, ahem, clean, simple lines), I cannot help but think the likelihood of a continuation of the downturn is more likely than the resumption of a secular bull market which sweeps to new highs.
