Barnyard Markets

Everyone knows about bull markets and bear markets and they know that bulls get rich, bears get rich and hogs get slaughtered.

That is not enough information.

People who own stocks and who make money doing so, not the majority by the way, achieve their result because they have an advantage of some kind compared to the marketplace in general.

For example, Warren Buffet is a complete realist about business value, is patient, and has a bigger than average capital supply.  While, I don’t know of his bad deals, I suspect he terminates them before they can do material damage.  Another version of realism.

For others, it is better information, better analysis tools, specific industry skills, longer than average time frames, better tax position, cheaper financing, the ability to find and trade one position against another, or the ability to add management and organizational value like a real estate developer or a Venture Capital fund.

People who stay in the market when they cannot use their advantage tend to lose big when they do not understand or cannot find a comfortable position.  This frequently happens when the underlying rules change, (Like the Hunt brothers silver position in 1981) or when the “certain not to happen” event occurs, (Like Long Term capital Management and the Russian debt default in 1998)  The resulting books are usually subtitled something along the line of, “I Was Right 18 Times And Only Wrong Once.”

It is possible for you to have a bull environment when all others have a bear environment.  Your advantages make you money when the situation is right.

As the result, bulls and bears do not describe all possible markets.  There is the Chicken Market.  That is the one that comes along and you have no clue about why the market is behaving as it is, but you know it does not suit you.  So you sell everything and hold cash until you do understand.  Or at least, that is what you should do.

If you are making investments that do not connect to your personal advantage or that you do not understand, you are not only taking risk, you are making risk.  Not smart.  Not profitable.

One Comment on “Barnyard Markets

  1. Pingback: How Retrospection Makes You Better – moneyFYI

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