06-17-2020: The Height of Arrogance

I received a note from an investor who had recently fired his advisor, and I thought I would share his story with you.


Paraphrased, it went something like this...


In March I lost over a million dollars in my account, with over 300k of that from losses in BA. At the time I only knew of “fundamental” investment strategies - which my advisor follows. Locked down during COVID, I spent many hours learning about technical analysis. When my advisor couldn’t - to my satisfaction - articulate why stops were not employed, and advised that she did “not believe in technical analysis,” we parted ways. I watched an interview of Mike on StockCharts and was impressed with his common sense approach; and in particular, how he uses stops. I want to learn more about Turner Capital Investments.


I have heard this story, in one form or another, countless times. Every investor should ask their financial advisor, "How much are you willing to let me lose before you move me to cash?"


It is ONLY the height of arrogance to assume that just because a stock or a fund has outperformed in the past, it will continue into the future. Even FINRA requires advisors to state, clearly state, that past performance does NOT guarantee future returns.


Advisors who assume their picks are never wrong will ultimately always be wrong at some point. That's too much risk for me.


Fundamentals matter... technicals matter... luck matters... math matters... being really smart matters... being disciplined matters... having rules and following them matters.


But what matters the most is to always assume the trade you just put on or a position that you have held for years, can (and likely will) move against you by huge percentages at some point. This is why I ALWAYS assume every trade I put on for my clients is wrong! No one knows what the market will do the very moment after a trade has been executed. This is why I ALWAYS use stop loss settings and move them up as fast as I can while I can. The goal is NOT to be the sharpest knife in the drawer and be so arrogant as to assume all of your trades are right. The goal is to make money when you can and above all else limit losses whenever possible. Just like the gentleman described in his note at the top of this blog... Betting that a stock cannot be crushed at some point (generally when you least expect it), is a fool's game.


Hope for the best in every trade, but plan for the worst in every trade.


As for the market today... It got ugly late in the day and the afterhours futures look pretty bleak for tomorrow. So, shall we sell everything in the morning and short the heck out of this market. Maybe. But, that's not my plan.


I have stops in place for each of my holdings in each of my client portfolios. They may trigger tomorrow, but I doubt it. The 200-day moving average of my composite index is still on a bullish slope. Uncle Sugar is giving no indication of slowing down the gravy train. The market may drop a few points tomorrow and if it triggers my stops, fine. If it doesn't trigger my stops, that will be fine, too. There is no angst; no gnashing of teeth; no worrying about what to do. If the trades we have in place are 'wrong', they will get stopped out before we lose a ton of money. We'll take tomorrow as it comes and my clients will not have to worry about the outcome.


Don't get me wrong... I MUCH prefer big up-days than big down-days that stop us out of positions; and who doesn't.

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