The Best of Kass

NEW YORK (TheStreet) -- Doug Kass of Seabreeze Partners is known for his accurate stock market calls and keen insights into the economy, which he shares with RealMoney Pro readers in his daily trading diary.

Among his posts this past week, Kass explained why the market is setting itself up for disappointment, why he ditched his Citigroup position on Thursday and what you should do when the market goes against you.

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Ignorance Is Bliss
Originally published on Friday, March 8 at 2:14 p.m. EST.
  • If hopes of a grand fiscal bargain are being incorporated in stock prices, disappointment lies down the line.

An overbought U.S. stock market, downside risk to GDP forecasts from the stronger dollar, fiscal drag from spending cuts due to sequestration, higher personal tax rates (and their impact on corporate profits), inertia in our leaders addressing the budget deficit, negative productivity (and its impact on corporate profit margins), a recession in Europe, evidence of slowing Chinese economic growth and a host of other factors be damned -- Mr. Market continues to be a on mission to go higher.

Now there is talk of a "grand fiscal bargain" after the president reached out to Republicans during a special dinner earlier in the week. On this score, my Washington contacts are saying "no way Jose" to a grand bargain, as the administration is still committed to no entitlement cuts and more tax increases while the Republicans are committed to entitlement cuts and no more tax increases.

So, if hopes of a grand fiscal bargain are being incorporated in stock prices, there will likely be disappointment down the line.

But for now, as Queen sang, "nothing really matters" (to investors, that is).

After this morning's selloff, the all-too-familiar action of higher lows and higher highs in the market (during afternoon trading) has reappeared.

At the time of publication, Kass had no positions in securities mentioned.

Citigroup's Stingy Buyback
Originally published on Thursday, March 7 at 5:37 p.m. EST.
"One last thing."
-- Lt. Columbo

Citigroup ( C) requested only a $1.2 billion buyback through first quarter of 2014.

This represents less than 1% of the company's market capitalization.

Moreover, the bank pays only one penny a quarter in dividends, and it didn't request an increase!

The "Fast Money" gang thinks this is positive.

I respectfully disagree.

I am selling the rest of my Citigroup on the strength in after-hours trading.

At the time of publication, Kass was long Citigroup.

What Do When You Are Wrong
Originally published on Wednesday, March 6 at 1:28 p.m. EST.

I have a little poem I'd like to read in honor of the occasion of being wrong on the markets since mid-January.

And I would like to provide a checklist of things to do when things go different than one's baseline expectation.

If I may ... and Spaulding, get your foot off the boat.
"It's easy to grin when your ship comes in / And you've got the stock market beat. / But the man worthwhile is the man who can smile /When his shorts are too tight in the seat."
- Judge Elihu Smails, Caddyshack

OK, Pookie, do the honors!

Here is my checklist when things go differently than I expect in the markets.
  • Most importantly, spend some time objectively re-evaluating one's investment thesis.
  • Be honest with yourself, challenge yourself.
  • If conditions have changed, change your investment strategy.
  • Seek counsel from smart investors you know and sit down and discuss your thesis and get his/her feedback.
  • Take 10 deep breaths and do nothing for a while. Like Being There's Chauncey Gardner ... just be there and watch.
  • Try to stay balanced emotionally. (Physical exercise is usually a good idea. So is a good book).
  • Speaking of books, go back to your library and do some homework by reading about the legendary masters and their investment methodology.
  • Do not double down or average up until some time elapses and you have enough time to settle down, analyze your positions again and get input from others.
  • Lastly, if you conclude your currently wrong-footed investment position will prove accurate, do not be dissuaded. Stand firm in view.

Remember, in the investment business we don't necessarily swing for averages. It is discipline that helps us deliver superior returns.

At the time of publication, Kass had no positions in stocks mentioned.

Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

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