Losing Our Religion

So far in 2023, US equities are up nearly 4%. At the same time, the most popular long-end US Treasury ETF is up more than 7%. That's a welcome reprieve after 2022, when both stocks and bonds fell together, in what counted as a singularly terrible year for a "traditional" balanced portfolio. Note the scare quotes around the word "traditional." If you're younger than, say, 40, you were raised in the era of the 60/40 portfolio, and you were probably taught to regard the bedrock assumption behind
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7 thoughts on “Losing Our Religion

  1. While I have no reliable answers or insights, I do feel like I have never known more or been smarter about markets, or had easier and more timely access to comparatively top notch data, analysis and commentary than I do now. I have evolved into an instinctive contrarian but have guiltily participated in my generation’s bubbles. My religion used to be reading Barrons cover to cover each week, excepting the weekly 45 pages of price quotes. I recall a seminal point where the publication bowed to the bifurcated demands of its readers to cleanly segregate the quotes into their own pull out section that could either be stored for eternal reference in a pile on some bookcase, or quickly disposed of in order to reduce the volume and packing weight of each issue by about 2/3rds. I was in the latter camp, thanks to my $0.49 per minute dial-up Telescan service that made printed stock quotes my generation’s OK boomer symbol.

    And that is all just a lot of verbiage to say there is a real risk in accumulating knowledge and experience and having access to information in that you are inclined to think you’ve seen this before or know what it means and know what to do. I remember your post(s) that old school analysts were being put out to pasture in our QE regime because they couldn’t get comfortable paying 35x sales, were consistently lagging their “peers,” and just couldn’t be reprogrammed at this point They lacked courage. (And then energy rallied and FAANG reverted).

    It is popular to declare that these are unprecedented times in the face of uncertainty, but for once in my life I feel like this may actually be true. For me, my lifetime-honed contrarian bend has sort of fattened and softened with age to a more flabby, anti-conviction stance. Do your homework. Move in and out in increments not big swings. Manage position sizing. Harvest better than expected cap gains and don’t let losses run. Write more calls and puts. In the end, my life’s education and experience in the markets seem well biased on the side of the unexpected thing happening. Or, to compound that, when the response to the unexpected thing happening was no where near what would have been expected in advance. The age old complaint — “even when I’m right, I lose money.”

    But while we may be fooling ourselves by not fooling ourselves (getting smarter), this is already another really solid post to start the first couple of weeks of this year. As confused as I may sound, I give this blog a lot of credit for keeping me in touch with my (actual) reality. And if that’s not clear, it is intended as high praise. My only conviction is to have no conviction.

  2. I agree with much that you are saying, although as an options trader I tend to buy or sell premium based on price rather than inclination. I do try to screen out even excellent commentary, such as that sold by this site, when it comes to trading decisions. In my opinion, price is, in the end , the only thing that really matters.

    “My only conviction is to have no conviction.” Perhaps we are saying the same thing?

    1. That’s what successful flow traders (Folks in a pit, market makers & such) do. Approach every day as a blank slate.

      I did that for a number of years but it’s really not applicable to investment management with a longer-term horizon.

      1. Good observation. In financial theory every day is a clean slate but if you have a diversified portfolio with a large number of holdings, that slate is almost impossible to evaluate. And, as you so aptly observe, all those daily changes make one a trader not a long-term investor. (I’d never looked at this as a paradox before. Thanks.)

        BTW, I really like your comments on this site.

        1. Sorry to jam up the comments section on this topic.

          But Mr. Lucky I once worked on a trading desk where the boss recognized the distinction. He said he wanted three or four flow traders/market makers to bring in a steady monthly income to provide a cushion for the big prop traders on the desk.

          I was lucky enough to do both at times. A pinnacle was in 1979 when I quoted 45-52 and the counterparty replied “thanks for the nice price but nothing.” You see. Everyone else was quoting 45-55. That was $45.00/$55.00. A bit of a bid-offer spread eh?

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