When I first stepped onto the trading floor in 1987, I found out lessons were learned in a couple of different ways. One way was expense. Seemed that some important lessons had to be learned the hard way…..at great cost! Gaining experience sometimes had an expensive price tag. Another way to learn lessons was to listen to the cliché’s of the old guys. Sayings like “don’t fight the tape” and “go with the flow” were the older guys’ way of teaching the younger traders a lesson. That lesson, regardless of the cliché used, is that the market is bigger than you and doesn’t give a rat’s rear end what you think it should or shouldn’t do. The bottom line of their lesson was that “the market is going to do what it wants to do and there is no one big enough to stop it.” There may be some “slows” and some “blips” but in the end the market is going to do its thing. Individual investors should heed that advice!
As an investor, you must follow the market’s lead regardless of what your opinion is about the movement. Your position must match the market movement. If the market is going up, you need to be long. If the market is going down, you need to be short. This is the only way to make money consistently in the stock market. However, your opinion does come into play, just not in terms of position selection. Your opinion comes in when we are talking about equity selection and especially your hedge. When in agreement with the movement of the market, your hedge should be looser and smaller. When you disagree with the movement of the market, your hedge should be tighter and larger.
Maybe we should create a new cliché “trade the market and hedge your opinion!”
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