Rev Shark's Diary: Starting With a Clean Slate Originally published 03/06/2006 12:09 p.m. The market is churning and chopping and going nowhere fast. Breadth has slowly improved, and there are some underlying bids holding us up, but not much aggressive accumulation to drive things. I'm just staying patient for the most part at the moment. I've written in the past about how periodically selling all your positions and going completely to cash can be very advantageous emotionally and psychologically for a trader. The sense of freedom and clarity that this can bring is quite liberating. When you have no stake in the market, you can be totally objective. All the worries, hopes and other emotions that impacted your judgment are now washed away. Recently, I was reading Barton Biggs' very well-written book Hedge Hogging and was surprised to see that he also was a proponent of periodically starting fresh. It surprised me because managers with hundreds of millions can't do this that easily. He mentions that both Jesse Livermore and Bernard Baruch, who are regarded as two of the best investors in the first half of the 20th century, would sell all their positions and go on vacation when they felt stale or out of touch with the market. A couple comments that Biggs makes on this topic are worth some reflection. He writes that "when you are working with an existing portfolio and reshaping it, there are unrecognized, subconscious, emotional hangups that block you from impartial, cold-blooded investment actions like selling. ... It's hard to make yourself give up on a position, especially since you suspect, as soon as you do that the ornery, cussed thing will rally."
Steve Smith's Blog: Next Step: Single Platform Originally published 03/07/2006 10:15 a.m. Reader Xanmeo
Tony Crescenzi's Blog: The Next Big Trade Originally published 03/07/2006 2:52 p.m. Commodity-related trades all around. I mentioned this a week ago, but given the action of the metals stocks and many of the basic materials groups, it is worth repeating. One key risk is how the concerted rate hikes in Europe, the U.S., and possibly Japan will weigh on commodity prices and hence the unwinding of commodity-related trading strategies. Lower commodity prices are welcome from an economic perspective, but there are sizable positions held in stocks, bonds, commodities and currencies that are all geared toward rising commodities prices. Investors are leaning heavily on one side of this trade: long commodity-based equities, long commodity-based currencies, long the fixed-income instruments of countries benefiting from higher commodity prices, and long the commodities outright. It has been an easy trade up until now and we all know how these easy money trades end. Investing isn't normally as easy as it has been in the commodity-related trades that I mentioned. Investors will eventually have to work to make money in the commodity realm. When will it end? The commodity trade is likely to end after the cumulative effects of rate hikes from the world's central banks takes hold. If not, then inflation will accelerate. The unwind of commodity-related trades therefore represent one of the bigger market moves likely to be seen in the coming quarters.