Editor’s note: This article was first published in September 2013, just before that month’s Federal Reserve meeting. Spain’s high unemployment and falling risk premium, Wall Street’s record highs and Soros’s and Ackman’s positions reflect that time; “last summer” refers to summer 2012. The positions described here were the author’s own speculative trades in September 2013. This is not investment advice.
In a bear market, anyone can make money if they know how. In a bull market, even someone with no experience makes money. But right now is when many investors (myself included) are discovering that we are not smart enough to predict the moves of a market full of uncertainty.
As we wait for the Fed’s decisions, with indices like Spain’s, which has very high unemployment but a falling risk premium, with Wall Street markets at all-time highs and with black candles appearing that have so far been ignored, nobody knows what the market is going to do.
Billionaire George Soros went short on the S&P 500 and long on Apple. As we can see, right now Apple has fallen and the S&P 500 has staged a big comeback, to the point that Soros must be sitting on some accumulated losses.
I myself have losses on a short position I took on the IBEX 35, a position I have not closed yet as I wait to see what happens. Likewise, I currently have losses on my long position in Apple, but that is part of the speculation game. Although my instinct tells me I am right about Apple, in the case of the IBEX 35 my instinct no longer tells me anything (50/50), so all I can do is wait.
The worrying thing about this situation is that many of us were expecting a fall in the IBEX 35 (which may or may not come), and if it does not come, we will have missed out on some stocks we wanted to add to our portfolios at good prices.
Then there is Bill Ackman, who has lost more than 600 million by selling his J.C. Penney shares at a loss and has piled up almost 400 million in losses on his short position in Herbalife.
See also: What I learned from Keynes about investing
I suppose that, in this situation, many investors are tempted to put their money into investment funds that have delivered good returns in recent years. But it is from now on that those investment funds must prove they can generate attractive returns, because in recent years most private investors with a long-term mindset have enjoyed juicy returns.
Which brings us back, once again, to the fact that one of the most important things in investing is, in the end, the timing of your entry: anyone who invested last summer picking stocks at random is no longer losing money, whatever happens. Anyone who invests from now on will have to aim much more carefully, because they have no margin of safety or peace of mind in their position.
For investors with large amounts of capital and a conservative investment profile, yesterday we gave 3 stocks to invest in.
Featured image: Frank Plitt, CC BY 3.0, via Wikimedia Commons.
