ManyPeaks.com

I forget how that saying exactly goes.

But my goodness, you can’t even trust these banks to quote legitimate LIBOR rates anymore ! A sign of the times.

It sometimes pays well, but is a tough line of work.

One of my core tenets is to never, absoulutely never, let one individual trade or transaction impair our capital to a degree we can’t recover from quickly. Opportunity comes around far too often to cling to losing positions very long.

While preferable with a beautiful and personable girlfriend, there’s absolutely no need load up and marry any of your stock ideas.

Several smart and wealthy guys have found that out the hard way recently.

Oh no. Not even close.

Stocks rallying on bad news is not remotely uncommon. It’s usually the result of portfolio managers using a “well that was bad but surely the worst is over” rationale.
The market’s real enemy is uncertainty. And that’s what it got in spades, with today’s news that the SEC is now forcing Wall Street banks to reveal more information about their capital positions and liquidity levels.

My prediction: the term “level 3 assets” will enter Joe Sixpack’s vocabulary before all this is over.

After gapping up at the open, the market sold off mid-morning on rumors of US Navy contractors firing on Iranian gunboats (story was later refuted).  As of the lunch hour, we’re back to flatline.

I remain in a bullish mindset for two reasons.  First and foremost, there are lots of great looking individual stock charts available — far more than anytime since last Sept-Oct.  Second, the indexes keep chopping away at their key resistance levels:  139.50 for SPY and 72 for IWM.  Those levels also represent a 50% retracement of all losses since the December 26th top (”Merry Christmas!”).  To gain back more than half of those horrendous losses on a closing basis should provide a very tradeable rally and strong gains in the most solid stocks.

This wouldn’t necessarily the mean the bear market is over.  But.. the “long term” is merely a collection of a vast number of “short terms.”  Every one counts.

75% invested, no hedges

Andy Swan has a great post regarding the Bear Stearns / JPM transaction.. The gist is likely true, details aside.

His blog and Howard Lindzon’s are two that I follow regularly.

With 2008’s first quarter ending soon, I certainly would rather have made a ton of money for clients rather than having basically broken even.

When in doubt, our philosophy has been to reduce the risk we’re willing to take, both on any one trade and the overall exposure levels across the portfolio, rather than try to be a hero.

It’s certainly sexier to take a big bullish stand in dire times like this. Those in the “opinion” business can afford to call the bottom again & again.. by a month later people usually forgot how wrong the analyst was as he “re-iterates” his opinion. Eventually those folks may get it right, after many tries.

But when cold, hard losses are involved, your constituents are not (or should not be) so forgiving. That’s why serial bottom-calling is no way to run an investment management firm with vested interests in taking their clients’ assets to new high values as often as possible.

It doesn’t mean we aren’t actively seeking new opportunity — but we are certainly following advice from Mohammed El-Erian, who noted when leaving as Harvard’s endowment fund chief to return to bond giant PIMCO in August 2007:

“Those that did best the last few years were those who bought liquid assets and levered up. The next few years will belong to those who prudently manage risk.”

Prescient timing, my good man.

The SEC found that mutual fund giant Fidelity — including legendary manager Peter Lynch — failed miserably in that area.

The gist:  Fidelity portfolio managers and traders apparently paid Wall Street brokers inflated commission in exchange for lavish gifts — some not exactly kosher.  Those commissions, of course, are paid out of the assets of each mutual fund to which the trades are allocated.  In essence, fund shareholders paid for lots of goodies, including one Fidelity trader’s $160,000 bachelor party.

At Teewinot Asset Management, we not only utilize what we believe is the best / lowest-cost brokerage service available, we also abide by our fiduciary duty to always put client interests #1.

The best part?  Our performance-fee incentive model makes it economically (in addition to morally) beneficial to always look out for our clients’ bottom line.  And we will continue to do just that.

Thanks to long-time financial blogger Charles Kirk for rehashing these quotes from a legendary trader..  I relate most to the final point.  That’s precisely how Teewinot has kept losses to a minimum during 2008’s destructive market action.  Client accounts are basically breakeven for the year.

• “If a betting game among a certain number of participants is played long enough, eventually one player will have all the money. If there is any skill involved, it will accelerate the process of concentrating all the stakes in a few hands. Something like this happens in the market. There is a persistent overall tendency for equity to flow from the many to the few. In the long run, the majority loses. The implication for the trader is that to win you have to act like the minority. If you bring normal human habits and tendencies to trading, you’ll gravitate toward the majority and inevitably lose.” - William Eckhardt
• “It’s much easier to learn what you should do in trading than to do it. Good systems tend to violate normal human tendencies.” - William Eckhardt
• “One common adage on this subject that is completely wrongheaded is: you can’t go broke taking profits. That’s precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits. The problem in a nutshell is that human nature does not operate to maximize gain but rather to maximize the chance of gain. The desire to maximize the number of winning trades (or minimize the number of losing trades) works against the trader. The success rate of trades is the least important performance statistic and may even be inversely related to performance.” - William Eckhardt
• “The people who survive avoid snowball scenarios in which bad trades cause them to become emotionally destabilized and make more bad trades. They are also able to feel the pain of losing. If you don’t feel the pain of a loss, then you’re in the same position as those unfortunate people who have no pain sensors. If they leave their hand on a hot stove, it will burn off. There is no way to survive in the world without pain. Similarly, in the markets, if the losses don’t hurt, your financial survival is tenuous.” - William Eckhardt
• “I know of a few multimillionaires who started trading with inherited wealth. In each case, they lost it all because they didn’t feel the pain when they were losing. In those formative first few years of trading, they felt they could afford to lose. You’re much better off going into the market on a shoestring, feeling that you can’t afford to lose. I’d rather bet on somebody starting out with a few thousand dollars than on somebody who came in with millions.” - William Eckhardt
• “In many ways, large profits are even more insidious than large losses in terms of emotional destabilization. I think it’s important not to be emotionally attached to large profits. I’ve certainly made some of my worst trades after long periods of winning. When you’re on a big winning streak, there’s a temptation to think that you’re doing something special, which will allow you to continue to propel yourself upward. You start to think that you can afford to make shoddy decisions. You can imagine what happens next. As a general rule, losses make you strong and profits make you weak.” - William Eckhardt
• “If you’re playing for emotional satisfaction, you’re bound to lose, because what feels good is often the wrong thing to do. Richard Dennis used to say, somewhat facetiously, “If it feels good, don’t do it.” In fact, one rule we taught the Turtles was: When all the criteria are in balance, do the thing you least want to do. You have to decide early on whether you’re playing for the fun or for the success. Whether you measure it in money or in some other way, to win at trading you have to be playing for the success.” - William Eckhardt
• “Trading is also highly addictive. When behavioral psychologists have compared the relative addictiveness of various reinforcement schedules, they found that intermittent reinforcement - positive and negative dispensed randomly (for example, the rat doesn’t know whether it will get pleasure or pain when it hits the bar) - is the most addictive alternative of all, more addictive than positive reinforcement only. Intermittent reinforcement describes the experience of the compulsive gambler as well as the future trader. The difference is that, just perhaps, the trader can make money.” However, as with most affective aspects of trading, its addictiveness constantly threatens ruin. Addictiveness is the reason why so many players who make fortunes leave the game broke.” - William Eckhardt
• “Don’t think about what the market’s going to do; you have absolutely no control over that. Think about what you’re going to do if it gets there. In particular, you should spend no time at all thinking about those rosy scenarios in which the market goes your way, since in those situations, there’s nothing more for you to do. Focus instead on those things you want least to happen and on what your response will be.” - William Eckhardt

Also can’t help but pass along a witty, prescient quote I came across this week:

If you think education is expensive, try ignorance.

John Carter, proprietor of TradeTheMarkets.com is one source.

In tonight’s (free) missive, he makes an interesting point regarding the Treasury Bond market, Fed, and yield curve. It’s in the 2nd half of the 4-minute video.

An interesting — and semi-conspiracy — theory that just might be correct. He’s basically saying that if long-term interest rates in the US move significanly lower (thus bond prices significanly higher) that it signals the emergence of a domestic multi-decade economic stagnation similar to what Japan continues to experience (since 1989).

Just a heads-up. You will not hear this kind of opinion from mainstream financial news outlets. Gracias, senor Carter.