My strategy for investing (or speculating!) can be summed this way:
An opportunity to make money exists when mass investor perception diverges markets significantly from the inevitable future conclusion of present and unfolding underlying economic conditions.
While the future is never truly certain, sometimes underlying market conditions all come together acting in concert to make a particular market future nearly certain
I want all of you to believe we are not in or near an economic recession. That will add to the mass mistaken perception that’s swinging financial markets at extreme, away from underlying economic fundamentals. That’s money in my pocket.
Rewind to October of last year. The S&P 500 had climbed up 25% in fifteen months, in blind optimism against a backdrop of the beginning collapse of one of the greatest real estate (and overall credit) bubbles of this century.
What is that? That my friends is opportunity, exceptional opportunity.
However, as the market climbed into Oct ’07, I saw I was down many tens of thousands on paper on bets I had previously accumulated, having expected the market would have already fallen by Oct. Do I dump and cut my losses? I admit I was rattled, but I steadied myself and objectively re-evaluated: is the market being irrational or AM I being irrational?
I concluded by rational analysis, and also by undeniable sense of the inevitable felt deep in my core: fundamental economic conditions were at total odds with market behavior, and a market correction was certain.
I did what I call “walking into the fire.”
As the market climb accelerated into Oct ’07, I tripled my short market bets, and added leverage in form of more PUTS.
You know how that played out. Zoom ahead: today we again have an S&P 500 that’s climbed up over 10% off the March bottoms where I dumped my shorts.
And again I find I’m down tens of thousands on new downside bets I had placed after the market had climbed back up “only” 5%.
This time I’m not even rattled. Got that déjà vu feeling? Last week with the market at 1400, I walked into the fire and bought more puts to open. Even if the S&P 500 goes straight up from here to 1500, I’ll just again double-down or triple-down my short bets because then the market will even be more at odds with economic reality.
This is easy money.
Now as for my short oil bets, I’m sure some forum hangers-on will remind me of that, but I never claimed short oil was a sure bet and I didn’t bet my chips like it was. I understood that move was a pure Vegas’ gamble. Some things are far from being easy money certain. Oil has moved up to $125, but I have never increased my short position beyond my initial bet. I’m not crazy.
