The obvious temptation
The obvious temptation when any problem like that of Bear Stearns hedge fund hits the news is to pile on to it. Everyone is on the same side of argument saying this is disaster waiting to happen. From macro commentators to day traders to cartoonist everyone is piling on to the obvious argument.
The obvious argument for last 4 years has been colored by the dot com period market behavior. That is why majority has been waiting and waiting and waiting for the bear market to kick in which will lead to 50% drop. The obvious arguments are easy and intellectually lazy arguments. Most time they stem from ignorance. But one thing is sure if you get convinced by the obvious argument it costs you money in the market.
On the other side of obvious arguments is hidden, less apparent argument. If you are bearish or bullish , you must still try and figure out the not so obvious arguments.
Intelligent speculation and risk taking is all about not listening to obvious arguments. The mass media likes obvious arguments and that is why it is often wrong. Opportunities are in hidden arguments.On the other side of the trade for last four years have been people who have successfully stayed on the right side of market. There might be some merit in their arguments. So before jumping on to obvious argument, as a speculator one must think of ten other less obvious arguments. The dissonance between the two view points provides the profit opportunity.
The obvious argument for last 4 years has been colored by the dot com period market behavior. That is why majority has been waiting and waiting and waiting for the bear market to kick in which will lead to 50% drop. The obvious arguments are easy and intellectually lazy arguments. Most time they stem from ignorance. But one thing is sure if you get convinced by the obvious argument it costs you money in the market.
On the other side of obvious arguments is hidden, less apparent argument. If you are bearish or bullish , you must still try and figure out the not so obvious arguments.
Intelligent speculation and risk taking is all about not listening to obvious arguments. The mass media likes obvious arguments and that is why it is often wrong. Opportunities are in hidden arguments.On the other side of the trade for last four years have been people who have successfully stayed on the right side of market. There might be some merit in their arguments. So before jumping on to obvious argument, as a speculator one must think of ten other less obvious arguments. The dissonance between the two view points provides the profit opportunity.
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5 comments:
This dip is related to all the call buying on Wednesday. All that dumbmoney who "piles on" on up days as such almost always gets shaken out. I am playing this as an opportunity to buy for a rally in July. This is what I said would happen on Wednesday on one of your posts.
Looks like mild profit taking and Nasdaq has the bid.
Pradeep,
Thanks for sharing your excellent ideas. This is the best of the best blogs on stock market strategies.
Do you also use a model for the general direction of the big averages (trend determination) next to your outstanding stock picking strategies?
Thanks, Joerg
outstanding post Pradeep,
I noticed today that LUM made a new 52 week high. They are a REIT and they invest in fixed and ARM single family home mortgages. Also some insider buying near the current highs. I have no interest in buying it but i think its notable in light of all the concern about Subprime spilling over into other stuff and destroying the economy. Its possible that there is something special that i dont see about the company but they did take a hit with the NFI and LEND panic. But would LUM be making a 52 week high now if the housing market was on the verge of self-destructing? I think probably not.
Joe
See the post on Market Monitor in sidebar. That is used to determine likely safer or risky zones in market.
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