On Being Confounded

[This essay was inspired by Charles, a thoughtful commentator.]

What does it mean to be "confounded?"

According to my oversized dictionary, "confounded" means "confused," "perplexed," "damned," "cursed," or "blasted."
Lets' work with the definition "confused," for a moment. There are a thousand and one reasons to be confused by the market. It doesn't reflect fundamental conditions. It goes north when I was thinking south. It seems rigged (damn those floor specialists who stole my 0.05 JNPR January 20 calls/smile). It blows hot and cold. Black Swans strike out of nowhere like the Flash Crash. JP Morgan is wildly bullish but my gut is wildly bearish. I could go on and on and on.

It is ok to feel confounded by the market. You are not alone. No one has the right answer all of the time.

Our job as investors and traders is bring order to the chaos. It doesn't matter whether you are a hard-core fundamentalist like Jim Rogers or a hard-core technical trader like Mark Weinstein or a fundamental/technical investor like Las Vegas dancer Nicholas Darvas. There is order in the chaos that can bring dollars into your purse. Your job is to discern the best tools for you that help you bring order to the madness.

For example, alot of investors and traders were thrown for a loop on December 1. Get over it. Accept it as a part of doing business. I chose to bring order and understanding by committing to memory busted chart patterns. So, I see the signal. I feel comfortable (and not anxious) because I recognize the signal. I can then see the opportunity ("this market is going up NOW!) and not the fear that I was wrong on the direction. Its about personal psychology. Had I frozen in place, I would have left 25 points (1215 - 1240) on the table. Life is a game of inches, you know.

Legendary trader Marty Schwartz said that he turned from loser to winner when he decided it was more important to make money than to be right. Think about that.

Another way to bring order to the market is to think in terms of waves. Life is about waves. Keep it simple. Wave I catches everyone by surprise. Whenever that happens, you are in an opportunity moment in real time!! You are because four waves will follow wave I. This is how you make money. You bring order to the chaos by immediately positioning yourself in the direction of Wave III and Wave V. See how the order gives you supreme confidence? You know when to buy ("My lord, what a gift!"). You know when to sell ("Its time to go. No regrets.")

Another way to bring order to the market is to think in terms of Contrary Opinion and the Fear Factor. When you turn on CNBC and you hear analysts braying to the moon that the market might go up some preposterous amount next year and they work for JP Morgan, it is a good time to sell! When you flip to Jim Cramer and the first words out of his mouth are, "You ain't seen nothing yet!" you grab your phone, call the Thrift Savings Plan, and transfer 100% to the G Fund until the storm has passed. This knowledge will give you the confidence to fade the so-called experts-the JP Morgan analysts and Jim Cramers-of the world.

Remember, cash is a respectable position to be in.

So, those are my thoughts on being confounded. Bring order to the market. It doesn't matter what tool you choose. I could have a long discussion about the pros and cons of various tools. Ultimately, its an art form.

Have a good evening!

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