Buy and Hold? Buy and Sell?

Great point by Quint here.  You should give the man a call and become a client of his firm if your results indicate failure to perform on your own.

Reprinted below from Tatro Capital:

Were You Saved in Q1?

ackmanDuring the 1st quarter of 2016, legendary investor / activist Bill Ackman was ridiculed by the investment community while he rode his investment in Valeant Pharmaceuticals into the ground, losing billions in the process. Traders and Investors alike scratched their heads in bewilderment as they observed first hand, a seasoned professional throw risk out the window and become emotionally involved in a story that will never return to its glory. The money has been lost, Valeant has dropped from a high of $263 to $28 as I write today. Most people don’t realize that to make up this 89% drop in value, the stock now needs to climb 839% just to get back to even.

Yet here’s the irony of this. As much as we are aghast at the arrogance Mr. Ackman must possess to let his position free fall into the abyss, we praise those who willingly rode the general market down 11% in the first few weeks and back up again to a small gain for the quarter? You see on one hand, the stock continued while on the other the market bounced, however the same exact arrogance, lack of discipline and dangerous trading style prevailed in each scenario. The only difference is the outcome. In the former, most shake their head over Mr. Ackman’s misfortune and yet in the later, we smile over what some are calling ‘investment discipline.’

So let me get this straight, if you rode the market down 11% and were not stopped out in the process, just where would you have taken losses? 15%? 20%? Never? You see, there is no difference in your ridiculous gambling than in Mr. Ackman’s bet on Valeant. Sure, I realize you will immediately say “that is one stock, and this is the entire market.” To which I will reply, a ‘lack in discipline is just that, regardless of the investment vehicle.’

Don’t be so quick to praise those who held on, white knuckled during Q1 and were once again bailed out. These are the folks who will eventually ride a bear market down into the abyss and capitulate at the precise bottom.

Markets are hard, they always are and always will be. I’ve never ever come across a market environment where I looked back and said “Boy, what a breeze that was.” Despite multiple years of overhead supply and general sideways activity, our risk models turned positive last week and now we will be on the lookout for adding new positions, should this continue. Ideally, I’d like to see the overhead supply challenged in all indices and I would not at all mind buying closer to new highs than right here.

I’m not bitter over Q1, as our management prevailed and we performed not only better than the general market, but with a fraction of the risk and volatility. My only goal is to point out just how dangerous it is to praise the outcome, rather than the strategy.

 

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