I spent the New Year in Lake Tahoe, which is one of my favorite and most beautiful places in the world. Heading up to the lake with family and friends for a few days (and leaving my laptop at home) really helps clear my head and let’s me focus on the environment we’re currently living in. I see again and again people trying to compare today’s market to “the average” of a dozen or so bear markets in the past. It’s painful to watch.
It’s hard to remember a time where I saw this much irresponsibility among investors, especially the pros who should know better. These “asset managers” are so busy dealing with investors, compliance, operations, marketing, regulations and whatever else they’re busy doing, that they’ve completely underestimated the amount of risk in the stock market. It’s like they forgot that risk is a real thing.
And what are they doing to justify their actions, or lack thereof? They’re relying on a tiny sample size of prior market declines to “wait and see” what happens. They think they’re “Portfolio Managers”, but they should be “Risk Managers”. There’s a huge difference.
I’m watching US Treasury Bonds, precious metals and Japanese Yen ripping every day while stocks lollygag near 52-week lows. Volume in stocks has been non-existent the past week or so as the big boys are on vacation and these sorry excuses for trading sessions are just here just to keep journalists busy.
Over the past 3 months, I’ve been incredibly obnoxious about raising cash and preparing for “unlimited” downside risk in stocks. Some people just brush it off as a bearish call by one of an infinite number of market commentators. And that’s fine. Those of you who have known me for a long time know that I’m not the boy who called wolf. I’m not one of these clowns telling you the market was going to crash every day the past few years. We all know who they are. Fortunately, I’ve actually been the exact opposite. We’ve been pounding the table since early 2016, and even more so since Summer of 2016, to buy stocks – the best of the best. That worked very well.
BUT, we’re not in that environment today. Since the beginning of the 4th quarter, we entered a new regime. The line in the sand was drawn. It was very clear. Markets fell apart after that, particularly US Stocks catching down to the underperformance of other global markets.
Was that it?
That’s what they’re asking. That’s what the unprepared would like to know.
My argument is no. In fact, I think there is more risk to stocks today than there was 3 months ago. I have not seen any evidence whatsoever that suggests the selling in stocks is over and that we need to be buying for a sizable rally that can last more than a day or two. To the contrary, we’re seeing Gold, Japanese Yen and US Treasury Bonds all ripping to new highs while stocks struggle to put together any kind of advance.
I’m not sure what some of these people are looking at. Taking a dozen bear markets from the past and coming up with an “average” of what they’ve done is cute. But to me, it’s borderline insanity to think that this bear market will look anything like the prior 12. It’s even more ridiculous to think it will look like an average of all of them. If you’ve been at this game for a few months or even a few years, I get that you haven’t learned this yet. But we’re watching 20-30 year veterans falling into this “Average” trap. I’m embarrassed for them.
We have to approach this as simply accepting donations. I’ve done everything I can to express my feelings about this market. I’ve received countless emails from investors all over the world and financial advisors who have helped their clients avoid disaster last quarter. I can’t begin to tell you how much I appreciate the kind words. We work really hard and sometimes we get lucky and it pays off 😉
This is not a drill guys. This is not some text book in college or some book written by a group of data miners. This is real life. This is real risk. Based on what I see, it’s being incredibly underestimated, even still. They just don’t get it. And in many cases, they don’t want to get it. It’s not worth the aggravation. They would rather blame someone else or send their clients another compound interest chart. Don’t be that guy!
So what more can I do? I’ve done by best to tell it like it is. I can’t feel bad for those who lose money this quarter because of a lack of risk management. As both an investor and someone who thousands of investors turn to for guidance every day, I have to look at it in the opposite way. They are giving us donations. Their losses are our profits. We need their irresponsibility to fatten our pockets. That’s just the way it is.
We do not have any influence on the future direction of the market. There is nothing we can do to avoid trillions of dollars of losses in stocks. It’s completely out of my hands. The only thing we CAN do, is profit from it. We did that really well last quarter. And I think we’ll do it really well again this quarter.
I just released my Q1 2019 Playbook. I encourage you to download it and check out the trade ideas and global macro perspective. You can read it by starting a 30-day risk Free trial, which includes a 30% discount to current premium prices.
Shoot me an email after you give it a read and let me know what you think!
This 30% discount will not last long. Download my Q1 2019 Playbook Now risk Free!