Hope is A Good Companion But a Poor Guide!

``Risk can be a friend or foe and as an investor you will succeed or fail depending on how you deal with it. Risk is inherent condition of all investments and should be respected, assessed, managed and prudently controlled.”-Ed Easterling of Crestmont Research, Risk is Not a Door Knob

TO some, my words of caution have been viewed as displeasing or unwelcome, as I had been expected to play the role of a perpetual cheerleader for the markets. There are even those of you who think that my views as that of a messenger of doom, a party spoiler. ``Therefore, whoever thinks he is standing secure should take care not to fall.”-Corinthians 10:12

Yet the reality is that parties don’t last. They never do. And betting on unfounded optimism can result to capital losses or mental anguish or a combination of both. As market savant Andy Kessler quotes his friend, ``The stock market trades to inflict the maximum amount of pain”. Pain especially for those who apply vanity to the markets. As we have said before, people get what they deserve.

You have to understand that my sustenance depends on being MAINLY profitable, which means reading, analyzing and acting right. Even when we maintain certain convictions, we certainly avoid from FIGHTING THE TAPE because previous experiences tell us that doing so leads to emotionally wrenching losses. Instead, we treat the trend as our friend. And even among hardcore chartists, they will tell you that markets are rangebound 80% of time and trends only 20%.

While we may not be always precise, we can consistently be profitable for as long as we principally act to PRESERVE our capital. And in doing so, we bank on the wisdom of Aesop’s principle with the foremost question in mind, is the bird in the hand is worth more than two in the bush?

Yes, our market operates in a juvenile state, such that it has been a ONE WAY street for investors; one can only earn from consolidating or advancing markets. When the cycle turns, all our investors can do is to sit on the sidelines and wait. Having said so, our fate depends on these conditions unless hedging facilities do come on stream. To my knowledge, hedging facilities such as short trades or the development of the option markets are still on the design boards yet [shorting may come soon].

In my case, I have made use of the advancement of technology and globalization trends to position on the overseas markets, particularly on Asian markets, as to diminish my home bias [expand my country risk profile] and reduce my dependence on the developments in the local markets.

In the aftermath of the recent tremors in the global markets, the bulls have been quick to respond with the conviction that the recent drop would be quick one, where like a storm, would be gotten over with soon. I do hope so too. But as Mark and Jonathan Finn of the Vantage group says ``HOPE is a good companion but a poor guide”.