February 23, 2009

The Big Lie

This blog isn’t called the spiral chartist because I think it’s a cool name (although it doesn’t hurt), its called the spiral chartist because of the concept of a spiral made up from a sequence of numbers that contain characteristics that are both unique in relation to one another and to the world as a whole. I use it as a tool to determine the behavior of the markets, not because of my love for the markets but because of my fascination with the human component that fuels the momentum that drives them. It’s also not really a chart in the customary sense. The spirals are simply my way of rationalizing the world where I observe a complex series of extremes not that occur in highs and lows but in gradual momentum higher and likewise lower. Think of a coil winding into a tight sphere and unwinding until its wound as tight in the other direction. And these moves have patterns that mathematicians and chartists and philosophers have been trying to make sense of for centuries, some using the spiral and it’s appearance in nature as empirical evidence of the practicality of its uses. I use it to give form to my views.

One of the most common themes I bring to my writing involves my constant astonishment at people who are perpetually optimistic on the markets. Even as they’re falling into the bottomless pit you can hear their voices telling us “everything will be okayyyyyy”. Now I know that it’s nearly impossible to flog a client with optimisms without some push back, but it’s important to appreciate that there is always the inevitable exchange of views that is widely used in the financial community that is characterized by the idea, whatever is right for me drives my opinion. Ask anybody, trader, portfolio manager, adviser and they’ve all had to be fast on their feet ready to find the silver lining in a stone cave. If this isn’t true tell me then the last time your broker told you that the market was going to continue to get slammed and you were long.

Let's face it markets aren't static, they go up and they go down. But most of all while they sometimes go up, they always go down. Therefore we all need to be prepared, but being prepared does not mean with the investments that will avoid those random pitfalls. You know, those special investments spanning every asset class containing investments with undecipherable characteristics made credible with ivy league kudos and positioned in portfolios with just the right mix arrived at through carefully crafted scientific means. All defended with arguments made by trained experts capable of taking any side of a debate.

Rule: A client’s expectations are harder to manage than his money.