As a card-carrying grizzly bear who views the investment/economic world as a glass half-empty, it is hard for many to understand why I try to capture countertrend rallies in both bull and, particularly, in bear markets.
I do it for the following reasons:
- My day job is managing two hedge funds, and I scratch and claw to register profits for my limited partners regardless of the external environment.
- While I always develop a baseline market expectation (hopefully, through logic of argument and analytical dissection), I am often wrong, so it is helpful to have hedges.
- There are always sectors, groups and individual equities that run counter to the primary trend; there is both a bull market and a bear market somewhere at all times.
Remember when you are reading and viewing the self-proclaimed brilliant bullish/bearish commentators, many of whom are often wrong but nearly never in doubt, to balance their views and arguments with your own common sense.
Reject any strategist/analyst who comes across with a smug certainty of opinion and fails to qualify his views with words such as "will likely," "probably" and "might."
You see, no one knows for sure. The investment mosaic is not linear; it is multidimensional and often hard to gauge, especially during the great debt unwind we face today.
Come up with your own independent decisions, and remember that convictions are for convicts.
As I said on "Squawk Box" Tuesday morning, I have long felt that neither Cassandras nor Pollyannas are money-makers; rather they are attention-getters. (Here are some highlights of my Tuesday "Squawk Box" guest gig on CNBC.)
Extreme views appeal to the media. Consider Warren Buffett's "Buy American. I Am" op-ed in The New York Times back in October 2008, his investment in Goldman Sachs (GS) or General Electric (GE) and his large notional short put position on the market indices when the major averages were substantially higher than today. Or, on the other side of the pew, consider the press's adulation of uber-bear Nouriel Roubini.
Extreme views can be appropriate at rare points in time, but they are generally bad bets. In reality, few (if any) can pick the tops and bottoms with any certainty. Importantly, it is a rarity when one's top or bottom calling is a profitable endeavor. Rather, stick with some basic tenets for investment success. They always (regardless of bull or bear) remain the same. But a warning: They are simple to articulate and write down but often hard to execute:
- Stay permanently flexible.
- Stop your losses.
- Let your profits run.
Of course, there are other foundations to successful portfolio management, but that's for another time.
—Doug Kass writes daily for RealMoney Silver, a premium bundle service from TheStreet.com. For a free trial to RealMoney Silver and exclusive access to Mr. Kass's daily trading diary, please click here.
This blog post originally appeared on RealMoney Silver on Feb. 4 at 7:41 a.m. EST.