After All Is Said And Done...
In the end, the most bearish of bears wins the big endgame hands down. There is simply no contesting this harsh and final reality.
Why must bears win in the end? Not because the entire financial system has been propped up upon the most fragile foundation of pixie dust, but simply because the quantifiable laws of physics conclude that one day, the world as we know it will come to an end and no longer support Human life. How's that for a view from the moon?
Although few if any may be alive to bear witness to such, all of the doom and gloom diehard bears will then be wholly vindicated. I'll bet you're feeling just a tad less bearish now huh? Think about it though, if the big game actually ends for good, can anyone realistically measure themselves a winner? We think not.
With this distant truth as a backdrop to the day-to-day business of living life one-day-at-a-time, all of the bullish cheerleaders are not only ignorant eternal optimists, but downright contrarians in the face of certain crushing defeat over the super-long-haul.
Either by the hand of Mother Nature, or by the rapidly escalating ineptitude and willful repetitive ignorance of mankind, those with the incessant drive to continuously blow the bull horn are indeed long-term fundamental contrarians whether they realize it or not.
What's in your bunker?
We're sure that by now, everyone knows that "the end" could come as soon as December 21, 2012. At least that's what the Mayan calendar says. There's always some sort of end-of-the-world story going around, and this one happens to be well publicized and right around the corner.
If anything, we'd prefer to view that date as an opportune starting point from which to launch a new and quite challenging beginning. One that will perhaps begin the long overdue process of first tearing down and then rebuilding (far more sustainably) the flawed paradigm's that mankind has simply refused to let go of.
The truth is that yes, real bad stuff can happen without much notice and have profound long-term effects on life as we know it. One day mankind's existential death blow will come. Perhaps not in 2012, or a thousand years from now, but it WILL happen one day. The natural laws of physics and mathematics guarantee it.
The fact is that none of us knows when "THE END" will come. In the meantime, do you wanna be one of those Hale-Bop Comet believers that get taken down-for-the-count on a cool-aide injected death spiral delivered by your guru guide to the universe? We didn't think so.
Who impresses you lately?
We suspect similar sentiments prevail relative to aligning ones trading stake to the most convincing guru guides to the financial universe simply because their arguments or prose happen to brilliantly strum across that special trust and belief chord that rests longing for validation within each of us.
So knowing each of our inherent susceptibilities with regard to trust and strong beliefs, what do we do between now and the inevitable end of the world?
The first question to answer is what is most likely come first, the end of the world, or the end of your generational lifelines.
The obvious answer is that the odds strongly suggest that we and all of our present generational down lines will all be gone and forgotten long before the world takes its last turn with people upon it.
With that profound but simple question answered, we would then suggest that you consider doing everything within your power to foster positive self-sustaining outcomes, while having adequate contingencies in place in the event things don't work out as generally planned.
In other words, prepare for and expect the best, but also be prepared for a host of unexpected adversities along the way.
It's really a rather simple formula that can be applied to many realms of endeavor. I guess you can call it a form of cautious optimism based upon objective reality and basic preparedness.
The components of the formula are also quite effective in fostering the disciplines necessary to profitably manage trading and investment accounts of every size, shape, timeframe, and objective.
So, given the permanent state of uncertainty that has stood in mankind's shadow from the very dawn of civilization, how does one go about navigating the more pronounced uncertainties resident within the modern day financial markets?
Come on, let's face it, just because we're alive today does not make our present set of uncertainties any more threatening than those that have occurred throughout history.
All of us need to get over our urgent sense of self-importance and recognize that perhaps we have not been chosen to save the world or to witness its end in our lifetimes.
So humble yourself to the uncertainty and get on with the task at hand in securing a sustainable future for yourself and your family.
We've been full circle with all of the ways in which one can prosper or wither in the financial arena.
On the one hand, conventional wisdom espouses that you must be continually invested for the long-haul in order to protect and grow your wealth. How's that strategy worked out for ya over the past 12-years?
On the other hand, something deep inside many of us simply does not trust a financial system so obviously laced with corruption and malfeasance to deliver as advertised.
We can't help but thinking that the conventional wisdom above sounds an awful lot like our state lotto commercials telling us "we gotta be in it to win it". Who gets the better end of that deal, the State or the player?
Don't buy into anybody's BS about what you must do, or what's going to happen next, especially over the long-haul because they haven't the slightest bloody concept of what exactly lays ahead.
So what does one do with their saved capital earmarked for trading and investment?
The first thing you do is congratulate yourself for having accumulated such capital.
Next, do what has been proven to work, and last, once you discover and KNOW what works, then make it work for you.
If that means cash and gold bars under-the-mattress, then go ahead and build a sustainable success of being the very best cash and gold bar hoarder you can be. If in the end you come out a winner, great. If you lose, you lose.
If you breakeven or come out somewhere in between, so be it, but at least you had a carefully preconceived plan and carried it out with discipline, purpose and intent.
Show me the specific performance history Einstein
Whatever you do, be cautious of the cookie-cutter programs commonly prescribed by the collective common wisdom of the mainstream. Such misguided wisdom is more inclined to scare you out of markets near cycle bottoms and suggest you hold tight or buy, buy, buy near cycle tops.
For an encore, many in this elite class will have the nerve to take selective credit for how well they had navigated their audiences through each cyclical top and bottom in told-you-so fashion.
If things really go sour on their watch, they'll formulate rather convincing excuses, and if you're lucky, begrudgingly accept some level of responsibility and insist upon another chance to prove that they still hold all of the answers.
But this brand of narcissist will never admit any wrongdoing nor accept any commensurate consequences for their most egregious failures. (For starters, think Sir Alan Greenspan & Co. and the too-big-to-fail crew that they were instrumental in spawning.)
So, if your impressed by someone's financial brilliance, arguments, charts, presentations, or writing style, do yourself a big favor and ask to see the historical record of how their brilliant assessments translate into concrete trading and investment methodologies, and how those specific disciplines have performed when applied to the last three, five, and ten or more years of market cycles.
If they are able to produce an equity curve generated by their disciplines showing absolute positive returns over numerous market cycles, then you know you've found someone who is on top of their game and perhaps worth listening to.
If all you get is answers that sound like excuses with chart illustrations pointing to their latest string of great calls, then you know it's time to pause and recognize that you may be on the verge of compromising your belief system by placing portions of your stake at risk in aligning it with someone else's discretionary sense of timing, and yes, luck.
Kick the Tires; ask questions, and Get Smart
Before you start kicking tires and throwing trading systems up against the wall to see how they have held up in the past, you must first realize two things.
The first is that no systematic trading/investment methodology can ever be perfect.
Secondly, the longer the stress-test period becomes, the greater quantified methods of engagement will outperform those generated by any single individual's real-time on-the-fly discretionary calls.
All trading and investment endeavors involve varying degrees of substantial risk. It is up to each individual to quantify those risks, and then decided whether or not he or she is willing to accept such risks in exchange for the returns those risks have been proven to deliver in the past.
Even then, there is still no guarantee that such returns will be replicated in the future. In fact, they WON'T be replicated. They'll either be better or worse, but never the same.
Historical performance and outstanding track records only provide for a far greater mathematical expectation of future performance in that the adaptive and anticipatory qualities inherent in such disciplines have far greater odds of producing similar results going forward.
Short of having a magic crystal ball that reveals the future, measured mathematical expectations are the only tool in the shed that one can rely upon to stay sharpest the longest.
After all is said and done, aligning your stakes with the most robust trading and investment strategies wins in the end.
If adequately understood, such methodologies may be applied diligently at one's manual discipline or executed automatically by ones trading platform.
If you have yet to quantify what works for your specific account size, timeframe, and objectives, its high time you get that homework done.
If you don't, well then you're either leaving everything up to chance or staking your account on the hopes of latching onto some variation of the quintessentially discretionary one-hit-wonder, hoping it will somehow all turn out okay in the end.
Don't get us wrong. There is a clear role for discretionary engagement and the predictive forecasting styles that spawn such practice. In fact, discretionary engagement is precisely what our charting and forecasting disciplines accommodate day in and day out.
Trading like a cowboy from discretionary market observations can be extremely rewarding at times, but it's clearly not for everyone.
Such styles are generally reserved for high-rollers with expendable trading stakes who relish in taking prudently measured risks in exchange for the thrill of victory, and who can readily humble themselves and recover fully from the agony of defeat.
In the world of the financial sphere as well as our own, all styles of engagement are embraced, accommodated, and welcomed.
We hope that you have enjoyed the introduction to this multi part series. Next time, we'll talk about technical vs. fundamental analysis as it relates to discretionary vs. strategic engagement.
Trade Better/Invest Smarter