I got dropped this quote early this morning and asked to comment on it –
• During a secular bear market, an investor’s job is to manage risk and preserve capital.
• During a secular bull market, it is to maximize return.
As a starting point I tend to agree with the overall tactical philosophy being stated. My observation has been that one of the biggest problems faced by those in the market is that they cannot identify shifts in market sentiment and then they do exactly the wrong thing during these shifts.
Investors/traders will often act in a manner that seems destined to exaggerate the damage any drop in the market does to their wealth. So instead of acting with the rational self interest predicted by economic modelling people in effect throw petrol on the fire and make things worse.
One thing we always harp on about is that there are times to be long the market and times not to be long the market. This distinction is lost on many. Part of the blame for this comes from the mass media who simply do not know enough about markets to make any sensible comment at all – within this basket I throw all mass media commentators. The moment someone mentions that people should average into weakness you know they dont have a clue about how the world works.
So during the course of the day do a peanut count – every time you hear a commentator say something stupid mark their name down in the peanut column.