MorningWord 6/21/13: Homie Don’t Play That Way – $SPY

by Dan June 21, 2013 7:39 am • Commentary

MorningWord 6/21/13:  Last night on CNBC’s Fast Money program we had spirited debate as to whether or not the last week or two (but specifically the last 2 trading day’s) price action could cause the “buy the dip” crowd to change their behavior and join the “sell the rallies” camp.  Let me be clear, the best trade since last September has been to buy any dip, and If you have done it, Mozel Tov, but the main point that I have been trying to relay for the last month has been that it may be time to hit the pause button as the volatility in other assets classes, globally, was likely to hit our shores sooner or later.

If you missed the discussion you can watch it here:

Based on the reaction in the @RiskReversal twitter stream I thought I would quickly adress some of my thoughts expressed last night (and if I came across angry I did not mean to, I have tons of respect for KFine).  As regular readers of RiskReversal know I am a micro guy. I like individual stock stories. I look for some sort of arbitrage opportunity between fundamentals and sentiment and usually look to the options market to express a defined risk short term view that offers a more than favorable risk/reward profile (if I have an edge, it is the combination of these skill-sets).  What I do is very different than let’s say a value oriented, primarily long only hedge fund manager.  I make no bones about it, one is fancy, and you have to tow a line so to speak. The path that I have chosen can be done in my undies at my kitchen table (it’s not) with little to no outside contact (sell side, investors, companies etc).  I have had good years trading and bad ones.  I am prone to the same mistakes that most of you are, and usually continue to make them, and this is the most important reason why I participate on the Fast Money panel, I believe that the challenges I face on a daily basis, trading my own dough is very similar than that of the readers of this site and the viewers of shows like Fast Money.

On nights like last night when I get labeled as a “perma-bear” I take issue because as readers of the site know fairly intimately, we look to sell rallies, cover shorts on dips, while occasionally adding longs 🙂  We are traders and that’s what we do. We are not in the business of having to build a generally long biased portfolio that will have to routinely outperform the S&P (almost no one does) and justify the fees that are charged for that usually evasive privilege.  If I managed your equity focused portfolio (which I am not in the business of doing), I would allocate 75% of the cash to long index and sector etf’s and use a few % to overlay options strategies to manage risk and/or add yield and leverage.  A small % of the balance would be used to make more speculative directional bets (as we do from time to time RiskReversal and look to add additional alpha so to speak).   Don’t get me wrong there are plenty of great stock pickers out there, but to do it effectively it is very resource intensive and to do it consistently and outperform just owning the SPY takes some serious risk management skills, some foresight and whole lot of luck.

Which leads me to my last point, If you are turning the TV on because you think some peeps on TV can help you piece together an investment strategy that will best the major indices, then I think you need to re-think your retirement (think mobile home in some swamp in Florida).  But if you turn on Fast Money for the reasons that I do, to get some up to the moment opinions on individual stock names and macro themes from some smart, experienced, active market participants (and how could I forget the genius host), then you should be able to take a few bits and pieces away to incorporate into YOUR OWN thought/investment/trading process, and hopefully be entertained a tad while doing so.

To sum up, I am not a perma-bear, I like to look at the markets and some of the ancillary goings on with a healthy dose of skepticism and because I am lucky enough to have a forum to express those views to the masses, I do just that, no bullshit involved, just try to speak to the people.  For the most part, and largely do to some factors that have been obvious for the last 5 years, the financial pundit community is fairly well conditioned to buy the dips no matter what that dip is 5%, 10% or 15%. But I have vivid memories of the two 50% dips since the year 2000. Homie don’t play that way. Remember, I am not your financial advisor, I am just that guy who likes to mix it up a tad with conventional wisdom every so often and while not a “doomer” we are likely to see another 50% dip before you retire! So a dose of skepticism about the markets from time to time is warranted.


Leave a comment