This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Apprenticed Investor: Bull or Bear? Neither

Let's say you are a bull, and the Fed is tightening, corporate earnings are sputtering, the yield curve is inverting. Do you drive straight through the red light, going aggressively long the Nasdaq-100 Trust (QQQQ)? Or do you notice the signal?

Now imagine you're a bear and sentiment is at an extreme negative, year-over-year S&P 500 earnings have gone from bad to so-so, and the Fed is cutting rates. Do you stop at the light, shorting the Spyders (SPY), even though it's bright green?

Savvy investors get long or short (or move to cash), as conditions dictate. When all the signals line up in the market's favor (regardless of style (valuations, sentiment, monetary policy, etc.), the smart investor gets long. When the indicators line up the opposite way, that investor gets defensive.

The terms bull and bear are anathemas to me. You can be long or short or mostly cash at various times -- sometimes all at the same time. So why commit to dogma? The market does not require you to declare your party affiliation or sign up for a religion. "Are you now, or have you ever been, a bear?" is not a question on a new account form. If there's a perceived advantage to being bearish, you should get bearish and vice versa.

Now, on to the public's reaction to bearish or bullish calls: One of the typical emails I get, particularly after making a bearish argument is: "In the long run, doesn't the market tend to go up? Isn't that reason enough for a bullish bias?"

It depends. If you bought stocks in 1966 when the Dow first hit 1000, well, the long run hardly bailed you out. The Dow didn't get over 1000 until 1982. How'd you like to spend 16 years and end up with a precisely 0% annual return? And that's before factoring in inflation.

The problem with the so-called long run is that it overlooks the here and now. "This long run is a misleading guide to current affairs," wrote John Maynard Keynes in his seminal 1923 work, A Tract on Monetary Reform . "In the long run," Keynes noted, "we are all dead."

It has also been an excuse for some terrible advice. Example: "Buy and Hold" works well during some periods (1982-2000) and poorly during others (1966-1982; 2000-2005). If you noticed a pattern here, you are already ahead of the herd.

Adaptability is the key to surviving these longer-term cycles of boom and bust. It is important to have a degree of sensitivity to changing market and economic conditions. Once you recognize a transition is taking place, or hear someone who does, you must be flexible in your response. It's a lot like Darwinian evolution: Adaptability remains the key to survival. This is just as true for investors as it is for iguanas.

Ignore the market's reality in favor of the long-term view, and you'll die with your conviction intact -- but likely little else.



1. Expect to Be Wrong 2. Your Fault, Reader
3. The Wrong Crowd 4. Bull or Bear? Neither
Check back for more of Barry Ritholtz's
Apprenticed Investor series

Barry Ritholtz is chief market strategist for Maxim Group, where his research and market analysis are used by the firm's portfolio managers and clients in the U.S., Europe and Japan. He also publishes The Big Picture, his macro perspectives on the economy and geopolitics, entertainment and technology industries, and is a member of the board of directors of Burst.com, a streaming media software company. At the time of publication, Ritholtz had no position in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Ritholtz appreciates your feedback and invites you to send it to barry.ritholtz@thestreet.com.
3 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
SPY $210.66 0.00%
AAPL $128.46 0.00%
FB $78.97 0.00%
GOOG $558.40 0.00%
TSLA $203.34 0.00%

Markets

DOW 18,132.70 -81.72 -0.45%
S&P 500 2,104.50 -6.24 -0.30%
NASDAQ 4,963.5270 -24.3630 -0.49%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs