The continued broad selling today is institutionally driven and has choked off the recent nascent rally attempt.
Most Investors are mainly concerned with preservation of capital at times like these. This is accomplished by a steel focus and flexible approach to how we are trading our plan. I have arranged position sizing and net long and short exposure in such a way that we can tolerate strings of whipsaws in tough markets like these. Then when good markets that trend come along, we are willing and able to adjust our sizing and exposure take full advantage of them.
The market will be very challenging and our intention is to make money in a focused consistent way. My mind is clear and my spirit is buoyant. In part this is because our system is not reliant on causal thinking. When it comes to reading the condition of the market we certainly don’t rely on analysts to come up with various reasons like the Fed is – out of bullets driving a market decline. Let me explain through an example why reliance on causal thinking is not always helpful.
Fundamental analysts generally start looking at a stock and making up reasons for its rise when he learns that some Trend Traders are already profiting from it and his customers want know what is happening. The customers want a causal reason for the stock to go up before they can buy it, so the fundamental analyst provides one. Although I filter investment ideas through an initial macro screen to find fundamentally sound ideas, it is not the only important tool we have available.
Some traders who describe themselves as Fundamental Analysts do seem to do very well. If you examine their methods however, you will see they actually do follow strong trends in price, earnings and market share. Our re-engineered approach gets us in earlier to capture the meat or bigger middle of a trend. We will never get in precisely at the bottom or get out at the exact top. However we can find what we refer to as “sweet spots “ which signifies a high reward-to-risk area to build a position in the leaders and signifies the readiness of a stock to move. Over time I believe this will enhance and generate results. For me, it is all about focusing on the process of our investing methods.
Kindest regards,
Michael Doran
President, Managing Director
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