Yes, I turned bearish when money market liquidity dried up in August 2007. Declining housing prices were the impending storm clouds, but it started raining when money markets stopped working. Most people, however, didn’t notice. Fundamentals are not about forecasting the weather for tomorrow, but rather noticing that it is raining today.
The great trades don’t require predictions. The Soros trade of going short the pound in 1992 was based on something that had already happened—an ongoing deep recession that made it inevitable that the U.K. would not maintain the high interest rates required by remaining in the ERM. Afterward, everyone said, “That was incredibly obvious.” Most of the great trades are incredibly obvious. It was the same in late 2007. In my mind, it was clear that the financial system was imploding and that most market participants hadn’t noticed.
Historically, what is important to the market is not whether growth is good or bad, but whether it is getting better or worse. Growth started getting less negative, and less negative is good news.
And the other 90 percent?
Implementation and flexibility. You need to implement a trade in a way that limits your losses when you are wrong, and you also need to be able to recognize when a trade is wrong. George Soros has the least regret of anyone I have ever met. Even though he will sometimes play up to his public image as a guru who knows what is going on, it is in no sense what he does as a money manager. He has no emotional attachment to an idea.
The great trades don’t require predictions. The Soros trade of going short the pound in 1992 was based on something that had already happened—an ongoing deep recession that made it inevitable that the U.K. would not maintain the high interest rates required by remaining in the ERM. Afterward, everyone said, “That was incredibly obvious.” Most of the great trades are incredibly obvious. It was the same in late 2007. In my mind, it was clear that the financial system was imploding and that most market participants hadn’t noticed.
Historically, what is important to the market is not whether growth is good or bad, but whether it is getting better or worse. Growth started getting less negative, and less negative is good news.
And the other 90 percent?
Implementation and flexibility. You need to implement a trade in a way that limits your losses when you are wrong, and you also need to be able to recognize when a trade is wrong. George Soros has the least regret of anyone I have ever met. Even though he will sometimes play up to his public image as a guru who knows what is going on, it is in no sense what he does as a money manager. He has no emotional attachment to an idea.
Believe deeply in the 'cockroach theory' and act on it.
Like those lowly bugs, bad news for a company seldom appears solo; a first disappointment is very likely followed by others.With thousands of stocks available, why remain loyal to under-performers? Stocks are not insulted by your selling them! Move on to what is working rather than sticking with the sleeping dogs or bad ones.
Especially, stocks heavily owned by institutions take long periods to regain money managers' trust and to overcome overhanging stock held by those wishing they'd sold before bad news hit. The widely heralded 'dead-cat bounce' after a terrible fall is small and brief.
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