My Comments: I am both blessed and cursed for almost always believing the glass is half full rather than half empty. Right now, my bias is to say that another correction like we had in 2008-09 is NOT going to happen again during my lifetime. But that’s not to say the business cycle of ups and downs over several years has suddently shifted gears.
We talk about secular movements, which means long term. They can be up or they can be down. Within every one of these, there are what we call cyclical movements, both up and down. One of the programs I favor for my clients is designed to anticipate those cyclical inflexion points, and invest accordingly. It has been very successful.
Earlier blogs of mine have suggested there will be a brief, but significant correction this year. And it’s possible we are seeing that happen now. But it’s not likely to last a long time. So you can elect to ride it out or stay on the sidelines, but I predict by the end of 2014, the market averages will be up, just not as far up as they were in 2013.
By Morgan Myrmo Jan. 26, 2014
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…)
“If there weren’t luck involved, I would win every time.” -Phil Hellmuth, Professional Poker Player
The stock market is a lot like poker. You may have a great hand, however, what begets success is a complicated structure that involves other players.
When it comes to the stock market, a great portfolio of stocks is comprised of valuation versus aggregate value and growth metric risk balanced with an understanding of the current political economic outlook.
There are several unknowns however, such as threats to aggregate growth, industry expansion and specific stocks. As in poker, successful investing can be held with a great hand but success is never guaranteed.
Winning poker players, such as Phil Hellmuth and Phil Ivey, understand the metrics of the game and use both odds and a complex understanding of human nature.
Bluffs are when players overplay low-value hand, which is akin to buying over-priced stocks. High-value hands, such as pocket aces, are played in a manner akin to holding high-value stocks.
Just as in holding the nuts (the best hand) pre-flop, uncontrollable circumstances can always change the nature of the game and as such, the most disciplined player would realize the option of holding or folding may be better than increasing the bet or going all-in.
Achieving Discipline In A Rising Market
The stock market’s basic valuation metrics are the price-to-earnings (P/E) ratio as well as projected short-term growth. While momentum always plays a role, disciplined long-term investors place value where value is due and over the years are richly rewarded.
Taking Warren Buffett, for example, the man who said to “Buy America” at the lows of the post-financial crisis bloodbath, while momentum was the market’s enemy, value was there and his discipline has been rewarded by exceptional capital gains.