Can A Good Investor Be Flexible?

Can A Good Investor Be Flexible?

I got this idea for a posting from Charles, a recent commentator. Thank you, Charles, for the idea.

Can a good investor be flexible? When we are in school, we are accustomed to advancing by getting the question right. We want to provide the right answer to the teacher. If we get the answer wrong, then we feel less competent. We feel less knowledgeable. These skills will stand us in good stead as we travel from grade school to college and beyond. These skills are made for the classroom. I appreciated these skills as a former law professor a long, long time ago.

However, investing is not a classroom setting. Market conditions are always changing. Opportunities are fluid. The experienced investor, with an embrace of Contrary Opinion, will learn to think in terms of probabilities. You see a market setup. You dig into your memory bank of experiences and observations. You retrieve a past memory of this pattern happening before. If the past outcome was good and other indicators support a similar outcome this time, you go with the flow. The goal as an investor is always to buy low and sell high.

Now think about that idea for a moment: Buy Low, Sell High.

There are infinite variations on that theme. You could buy really, really low and sell at the tippy top. Few, if any investors, do that. That's just reality. You could buy high with the expectation of selling higher based upon market conditions. William O'Neil believes in this approach to investing. It is the breakout approach to investing. It is very common among investors. Now, suppose you were wedded to the right answer; i.e., the market must touch 1130 before I will buy. Ok, that's cool. Everyone is an adult in this chat room. But are you so wedded to your position that you will close your eyes to a more immediate opportunity to buy high and sell even higher?

Its a different world from the classroom. No one will give you a blue ribbon if you keep waiting for 1130 to come around and it doesn't. But you will earn a good grade as an investor if you buy high @ 1215 and sell higher @ 1272. See the point? Investing is graded by gains, not the academic rightness of one's well-thought out position.

Now, I love a good ole' debate about the market any time. Bring it on! (smile) However, like the famous trader Marty Schwartz realized, its really about the bank account at the end of the day, not whether your analysis was right. Schwartz continued to lose and lose until he got over the impulse to be proven right and learned that the market is always right. As investors, we will gain if we embrace the idea that the market is always right. Imposing our preconceptions on the market might earn us an A in market analysis but not add a dollar to our retirement account.

Don't get me wrong. I love market analysts. I am a natural analyst myself. But there is a season for analysis. And there is a season for making money. December 1 was a good time to buy.

That's my thought about flexibility and the good investor.

Good evening!

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