Deep Market Thoughts – Ready...Aim...Chase!?!?

I can totally understand the panic setting in on money managers as we head into the fourth quarter. I have been there, done that.

Like stand-up comedy (although you don’t get paid for sucking), being a hedge fund manager and money manager can be pretty stressful day in day out.

As I look at all the price evidence for stocks I am bullish, but I find myself short some indices against my long stock positions. Adding up all my short sales and hedges since the March 9th bottom and it has cost my fund real money…about 4 percent in total.

For those that say, well that 4 percent gave me ‘peace of mind’ they are wrong or rationalizing losing positions. The 4 percent is not without it’s additional costs like the time it takes to manage the positions or the extra aggravation of just being wrong and fighting the tape. I have been stubborn, but this blog is the place where I try to clear my head because I don’t always practice what I preach.

Although I love momentum, I hate when I chase. I try to do the opposite of chase. When I started my hedge fund and managing other people’s money in ’98, I took on all clients that would have me. When you do that, you must perform in all markets, therefore you chase returns. You become a slave to the market.

As I have slowly built the business I want, I can avoid doing the things that made me insane. The chasing.

If you are managing your own money or have a broker managing it for you, it’s the one piece of advice worth sharing confidently…don’t chase.

The stock market is an opportunity machine. In March, few thought the market would see ONE up day. I read somewhere that we had an all-time record of 8-9 up days in a row for the S&P at one point last week. You get the drift…

The stock setups from the long side are thick. It looks like they will remain that way for a while – so don’t chase.

The armchair economists are talking V-Shape, U shaped, Double dip…asshats all of them. None of them warned of the cliff shaped drop we saw in the market and if they did, they were 4 years early. The few that timed it, missed the 60 percent rally. My pal Joe had a great post last week called ‘Bubblicious’.

The economists and fear mongers don’t see the markets for the opportunity machine it is. They don’t see the 5-10,000 ideas a day being passed around on Stocktwits .

Lucky us.

If you are ‘too small to fail’ you don’t chase. You are nimble and you pick your opportunities. You don’t have to be engaged day in day out.

Three big picture charts stand out for me this week. The first is one of a real estate index $IYR . Of course we can continue rallying, but a huge battle of sellers and buyers is ahead of us. Consider all the once buried investors in this index from last year who will be selling at every tick as they approach break even. That’s a battle where the sellers should have the upper hand now on a risk/reward basis.

The second is of the historical moves to extremes in the NYSE bullish percent index . Though anything can happen, major odds are on the sellers taking a bit of control at some point in the very near future.

Third is the 12 month rolling returns for the averages , which I have shared more than any chart the last 8 months. Although we are now creeping higher and will shoot higher if the averages just sit here, based on how bad it really got , the rolling returns could still have a huge move to the upside and not be out of historical character.

We don’t have to pick turns in the market, but we have to still do the work and read the tea leaves. Hope this helps.