Greetings from my kids' gym, which has the unmistakable aroma of a sock. After such an interesting day, I wanted to share a bit of how I view my trading management.
I've always been the sort to see things in metaphorical and analogous terms. My own trading, in my mind, most closely resembles bread-making. And by "bread", I am not speaking of the Greg Brady/groovy style (e.g. money), but instead the process of kneading the dough.
The level of meddling that is beneficial to trading is directly related to the nature of the market. If we could whisk ourselves back to 1982 (or 1992, for that matter), preceding a multi-year rise across the board in equities, the sensible thing to do would be to simply keep buying as many stocks as we could afford and not bother selling anything at any time. As Jesse Livermore's oft-cited quotation states, it's the sitting that makes all the money. A "hands-off" approach is best.
In a mid-2007 to early-2009 market, meddling was absolutely required. The "sitting" was why every mutual fund and hedge fund on the planet all had the same negative 40% return in 2008 – – they just let the world blow up in their faces.
These examples have the rather substantial advantage of hindsight, and obviously we don't know if the next, say, twelve months call for an active approach or a passive approach. I am of the view that being insatiably meddlesome is the correct approach in this market since – and this will come as no surprise to my readers – I don't see us at the cusp of an amazing new bull market.
Today was a good example of the benefits of being actively involved. I started the day about 70% invested and ended it about 50% invested, having taken profits in a number of positions that had "worn out their welcome" (not the least of which was XLU, on which I took profits moments before the FOMC announcement). I have every intention of re-entering virtually every one of these closed trades at a propitious time.
My "activism" mostly consists of adjusting my stops on a rather frequent basis, particularly if the market is moving. When you're dealing with as many positions as I am, doing this kind of thing every few days is a time-consuming affair, but I consider it vital to protecting profits. I see myself constantly "kneading the dough" of my portfolio – – adding, taking away, and adjusting – – in order to seek the best end result possible.
I will close by stating what I've stated many times during the past few days – – – a push higher by the bulls (which perhaps kicked off during the latter part of Wednesday's post-FOMC trading) would be happily embraced by me. I am watching the major indexes and biggest ETFs for what I consider to be important thresholds, and I will start scaling back into shorts as those levels are approached. I consider the March 2009-January 2010 rally to be permanently broken at this point, and I intend to not only push my commitment to my entire cash on hand, but – – if the stars line up as I hope – – dip, for the first time, into my margin buying power.
Thus ends my dough metaphor. Good night, and I look forward to another fun day with Slopers tomorrow morning.