Another subscriber complimented me on my series of tweets indicating an oversold market on Thursday, which suggested that the market was poised to rally should the Jobs Report on Friday morning was benign (click links to see tweet 1, 2, 3, 4, and 5).
Thanks, but I'm not that good.
Teaching my readers how to fish
Humble Student of the Markets is not intended to be a trading service. I addressed this issue in my post Teaching my readers how to fish.
Think of a building a boat as like building a portfolio. The portfolio management process consists of the following steps:
- Deciding on what to buy and sell;
- Deciding on how much to buy and sell; and
- Deciding on how to execute the trade.
- I know nothing about your cash flow, or spending needs;
- I know nothing about your return objectives;
- I know nothing about how much risk you are willing to take, or your pain threshold;
- I know nothing about your tax situation, or even what tax jurisdictions you live in;
- And so on…
A terrific call, or terrible call?
Consider the following example. On February 24, 2009, a week before the ultimate market bottom, I made a call to buy a high-beta portfolio of low-priced stocks, which I termed a Phoenix portfolio (click link for post):
- Stock price between $1 and $5 (low-priced stocks)
- Down at least 80% from a year ago (beaten up)
- Market cap of $100 million or more (were once "real" companies)
- Net insider buying in the last six months (some downside protection from insider activity)
Was that a terrific call, or a terrible call? You be the judge.
At one level, the call to buy a high-beta portfolio a week before a possible generational bottom for stocks could be a career making call. On the other hand, the market fell -11.9% based on closing prices before the final bottom was reached.
For investors, the Phoenix portfolio was well-timed and it went on to roughly triple its value in about a year. For short-term traders, the 11.9% drawdown was a disaster.
This brings me to my point. Don't blindly follow what I do. My return objectives are not the same as yours. My pain threshold will be different from yours, which affects the placement of stop loss orders.
Your mileage will vary. I can only teach you how to fish, not fish for you.
A copy of this post can also be found at our new site here.