This Week’s Commentary – August 25, 2007 – I am an idiot

by JDH on August 25, 2007

Late Friday night my family and I returned home from our two week vacation. As a result I have not had time to do a detailed review of the state of the world, so today I present my random, and mercifully brief, thoughts.

First, having had two weeks to think and reflect, I have come to an inescapable conclusion:

I am an idiot.

On my Portfolio Performance page, where I chart my performance over the past 10 years, I state the following:

“My portfolio reached a peak in August, 2000, at the height of the boom.  Rather then gradually taking money off the table as the portfolio grew, I got greedy, and paid the price.  The portfolio fell, registering a loss of almost 38% in 2001.

In hindsight, there is no excuse for a portfolio falling by 38% in one year.  Stocks begin to break-down, and once they do, it’s time to start selling. 

Guess what: My portfolio is currently down 29% for the year. I have lived through these corrections before, and obviously I have not learned from my mistakes.

I was up 94% last year, and I stupidly assumed that this performance would continue. When I was up 10% earlier this year I didn’t take profits, because I assumed there was more to come. Obviously, I was wrong, and history has repeated itself. 2007 is a repeat, for me, of 2000.

The sad part, of course, is that I know better.

My Investment Philosophy is quite clear: Buy High, Sell Higher. It’s really quite simple; buy a stock when it is going up, and sell it when it’s going down. Here’s an example, with our old friend PNP.TO – Pinetree Capital Ltd.:


You can draw the uptrend lines in many different ways, but it’s obvious that using a one year trend the uptrend lines were broken back in July, well in advance of the surprise “crash”. (In my own defense, I did sell a lot of Pinetree on August 9, as reported in my August 10 commentary, so at least I got out before the panic selling began).

Second, markets are becoming increasingly volatile (yes, I know, I’m not telling you anything you haven’t already figured out for yourself). Why? Because people like you and me can trade online with a click of a mouse, and the hedge funds are doing it too. The trick, of course, is to make the volatility work for us, not against us. Buy and hold forever is no longer an option, if it ever was.

Third, a 94% gain in one year does not make me a genius. It’s called a bull market. In a bull market, everyone is a genius.

Fourth, to make money, you must be a contrarian. You must do what looks wrong. We made a lot of money in uranium last year because the world had not noticed yet. The hedge funds and the world started noticing, they bid prices up, and when the credit crunch came and they started selling, it drove everything down. (Read Rick Rule’s thoughts, posted by davidslane, in the Forum for more perspective on this).

So, what would a contrarian do now? What is the next big market? I have some guesses, but at this point they would be un-educated, so for now I have no idea.

I still believe a re-test of the August 16 lows is inevitable, so I will take this week to sell some of my losers that have bounced (nothing wrong with a little tax loss selling). I will continue to hold lots of cash (I’m at 32% cash now), and I will do some selective buying; here are my favorites at the moment:

I believe these are companies with good management, good prospects, and they appear to be bouncing back better than some of the other stocks.

It is not a sin to have cash; there will be more buying opportunities ahead, so I plan to sell into rallies, buy on dips, and buy and trade more frequently than I did in the good old days of lower volatility.

As an aside, here’s a one month chart of Pinetree:


As you can see, on Friday Pinetree was up 21%, but the volume was lower than in previous sessions, so I don’t think this new uptrend is sustainable, at least not until “up” volume is larger than it was on the down days.

Please continue to post your thoughts on the Buy High Sell Higher Forum, and as always, thanks for reading.


{ 0 comments… add one now }