Active Trading Is The Only Way To Go In The Present Market Environment

So maybe Dennis Gartman is about to change his tune yet again? Don’t you just love it when he gives his daily sermon on Financial Entertainment TV, sounding like he is the Master Pundit, only to come back a day or two later to change his tune? Other than the lack of histrionics, I don’t see any difference between he and Jim Cramer. In fact, anytime I see a person making continuous appearances on TV or at “investment” conferences, and that includes CEO’s of big name corporations, I cringe because I know it’s more about marketing than markets.

On a similar subject, I have been reading a book by Michael H. Hugos called Business Agility. Basically, Hugos is saying that pundits today are not up to the task of adapting and responding to today’s complex, volatile marketplace. Trading exchange-listed securities is a business too, requiring agility to protect and build wealth. So I thought it might be good for me to see the models other experts use. It’s a good book.

I have been saying for some time that like it or not, trend and momentum-based hyper-active trading, which, in my world, is the essence of agility, is the only way to go in the present market environment. It’s not my preference, but I’m happy doing it. I just love to trade.

Active trading, however, does require enhanced sensitivity to psychological aspects and is not well suited to those who are expert at bottom-up oriented stock selector buy-and-hold investors. Although we don’t like to use or hear the word “never”, it could be that ‘buy and hold’ trading is never coming back. There is a possibility that globalization, electronic communications, real-time trade execution systems and the like have combined to cause permanent change in the way we trade.

A couple days ago, one of our group sent me some notes from Warren Buffett’s partner Charlie Munger that hit the nail on the head.

How and why do you think economists have gotten this so wrong?

I would argue that the economists have not been all that good at working concepts of good and evil into their profession. Nor do they understand, at all well, the economic consequences of bad accounting.

In fact, they’ve made a profession of driving value judgments out of the subject.

Yes. They say it’s not economics if you think about the consequences of good and evil, and good and bad business accounting. I think what we’re learning is that when you don’t understand these consequences, you don’t have an adequately skilled profession. You have big gaps in what you need. You have a profession that’s like the man that Nietzsche ridiculed because he had a lame leg and was very proud of it. The economics profession has been proud of its lame leg.

So in order to cure the lame leg, you would lean more toward an approach to economics that takes human nature into account?

If you totally divorce economics from psychology, you’ve gone a long way toward divorcing it from reality.

The same could be said of psychology. If you divorce economics from psychology…

That’s what’s wrong with psychology professors. There are so few of them that know anything about anything else. They have this terribly important discipline that all the other disciplines need and they can’t communicate that need to their fellow professors because they know so little about what these other professors know. This is not an unfair description of much of academia.

Something to think about this Memorial Day weekend, other than, of course, the ultimate sacrifice given by too many of those who have served in the military.

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