Betting against big picture
How does one go about cultivating the instinct of taking a contrarian bet on fundamentals/news? is it just a matter of taking all the rumors you hear and betting they're wrong?
Vladimir, a reader asked the above question about my housing call.
Here is what I observed before deciding on taking a long trade in housing.
New York Times and Washington Post Both had a front page story on housing. Now that is extremely rare for them to look at housing. The thrust of the story was housing is going to crash. Now when you see headlines like that you should just run and buy. They are always late to party.
Popular Blogs I was looking at popular blogs like The Big Picture, Bill Cara and Maoxian. All three had a
negative housing story. In fact The Big Picture had 3-4 negative stories about housing. Now these blogs are read by thousands and are very good contrary indicator, especially The Big Picture Blog. You can always safely bet against CNBC commentators. I was reading the comment on that blog and they were even more negative. So that set off a alert in my mind, hey everyone is so negative on housing and thumping table about it, lets look at the price action.
The Price Action While all this negativity about housing was being touted by these so called expert, the price action on the housing stock was just consolidating and stocks were not going down. So I decided to look for stock which is down more than 50% from high and had some catalyst, I found CHCI which had insider buying.
Update: Here is more on this at the popular blog.
Vladimir, a reader asked the above question about my housing call.
Here is what I observed before deciding on taking a long trade in housing.
New York Times and Washington Post Both had a front page story on housing. Now that is extremely rare for them to look at housing. The thrust of the story was housing is going to crash. Now when you see headlines like that you should just run and buy. They are always late to party.
Popular Blogs I was looking at popular blogs like The Big Picture, Bill Cara and Maoxian. All three had a
negative housing story. In fact The Big Picture had 3-4 negative stories about housing. Now these blogs are read by thousands and are very good contrary indicator, especially The Big Picture Blog. You can always safely bet against CNBC commentators. I was reading the comment on that blog and they were even more negative. So that set off a alert in my mind, hey everyone is so negative on housing and thumping table about it, lets look at the price action.
The Price Action While all this negativity about housing was being touted by these so called expert, the price action on the housing stock was just consolidating and stocks were not going down. So I decided to look for stock which is down more than 50% from high and had some catalyst, I found CHCI which had insider buying.
Update: Here is more on this at the popular blog.
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4 comments:
You might want to do so homework before making rash statements: The Big Picture has been skeptically watching Real Estate and Housing for the past 3 years;
Have a look at this roundup we did 18 months ago: Real Estate Wrap up.
I'm not sure the fact that the media and other Blogs have caught up to where we were 1-2 years ago is much of a contrary indicator; Herwe's a classic Contrary Indicator we ran in June 2005. Uh-oh: Time Magazine on Housing
There is a difference between analyst mentality and trader’s mentality. Your analysis might be right but as a trader I am only interested in what trade it precipitates. Unfortunately 'The Big Picture' to me is very good contrary predictor and good to come with contrary ideas because it is such a popular blog.
Look at the entire analysis about inflation which dominated your blog a few weeks ago, when I looked at popular blogs like your blog pounding the table on inflation, I said and traded contrary to that and said so. The bond trade contrary to popular blogs hysterical inflation pounding was the right trade at that time and it was exactly opposite of what should have happened going by the analysis you people were confidently promoting. You can see that call also on this blog. My point is very simple good analysis and good trading set ups are very different thing. Good trades are contrary to popular analysis.
Are we to understand your strategy is that when you come across a topic on a popular blog, that then becomes the basis for a contrary trade?
Seems kinda random. Its especially random when you consider that both topics you mentioned as the basis for a contrary trade -- Real Estate and Inflation -- have been the subjects of numerous posts at the Big Picture (and other blogs) for the past 3 years. I've been pounding the table on inflation for the past 3 years (see The Truth About Inflation).
And the bond trade began mid July when Fed futures strongly implied a pause -- not what you happened across on some blogs.
Hey, its your money, you trade it how you want to -- I sure hope your methodology goes beyond random clicks and some bizarre sense of what makes for contrary sentiment . . .
I think most people who frequent this blog knows how I trade systematically using system which is disclosed here many times which is based on certain market tendencies and statistical studies.
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