The little book of Common sense investing- focus on the Trend

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The little book of Common sense investing

The little book of Common sense investing

There is no such book when it comes to the financial markets; experts try to fill in the void but they only serve to obscure the outlook even further. Experts are nothing but EX Spurts; in other words, a spurt that never was.   The so-called experts of Wall Street would make no money were it not for the gullible masses they can milk. Overall hedge funds have been having a very hard time playing this market. They cannot deal with the extreme volatility as they try to outguess the market; they seem to get whacked on both ends of the trade. Look at how many funds jumped into Valeant Pharmaceuticals assuming that it was safe to follow other experts; the blind lead the mute.

In the land of the blind, the one-eyed Jackass reigns supreme

Pershing Square (Bill Ackman): 21,591,122 shares, 6.33% (added 5 million shares on February 5)

ValueAct Holdings (Jeff Ubben): 14,994,261 shares, 4.39%

Paulson and Co. (John Paulson): 13,265,900 million shares, 3.89% (added 4.375 million shares in Q4)

Brahman Capital: 8,117,753, 2.38% (added 4.1 million shares in Q4)

Viking Global (Andreas Halvorsen): 7,793,397, 2.28% (added 2.8 million shares in Q4)

Lone Pine Capital (Steven Mandel): 5,829,079 shares, 1.71% (sold 1.63 million shares in Q4)

Hound Partners (Jonathan Auerbach): 4,881,835, 1.43% (added 983,187 in Q4)

Iridian Asset Management: 4,324,602, 1.27% (added 1.6 million shares in Q4)

Okumus Fund Management (Ahmet Okumus): 1,875,600, 0.55% (bought position in Q4)

Coatue Management (Philippe Laffont): 1,673,007, 0.49% (bought position in Q4)

If they haven’t changed their positions, as a group, then they’ve seen more than $1.25 billion on paper wiped out since Friday’s close. Bill Ackman, the founder of Pershing Square, has lost more than $321 million in his position since Friday’s close. To date, he’s suffered losses estimated at north of $2 billion on his Valeant investment. Others are likely feeling the pain, too.  Business Insider

Top Expert getting clobbered

The little book of Common sense investing; experts getting clobbered

Ackerman is taking it to the Chin. He is getting hammered on his short position on Herbal life and now in his long position on Valeant. His overall take on of both stocks is correct, but this once again proves that the stock market is not ruled by logic but by emotion. You need to sit down and gauge how the masses will react, and not on what you deem is the right course of action.

Emotions, not Logic drive the market.

The same line of thinking can be applied to the markets; the experts assume that the markets should tank based on the data being released, and that is probably why they will not tank. Right now a correction is being falsely marketed as the beginning of a new bear; however, the only new bear market that has started is a bear on common sense.

Want to Improve your odds: Improve your understanding of Mass psychology

Mass psychology entails studying the action of the masses to determine which side of the market should be in; in general, when the masses are euphoric, you need to flee for the hills and vice versa. In contrast,  Contrarians do not measure their position relative to those of other contrarians; they only measure their position relative to that of the masses, and in doing so take a position against the masses too early in the investment cycle. The end result,  pain, misery and taking on substantial losses. In, other words; they do not measure the intensity of emotion. In this sense, mass psychology is dynamic compared to the methodology most contrarians put into play. in their camp

Mass psychology takes the principle of contrarian investing and then pushes it to the next level

Don’t behave like a lemming; that’s something you need to master if you want to apply the principles of mass psychology successfully? Students of Mass Psychology look for extreme type situations. In other words, sentiment should not just be bullish before an opposing strategy is put into play, it should be at the boiling point and only then will the student of mass psychology look for an exit and attempt to take an opposing position to that of the masses.

Investing based on psychology amounts to not only taking a position against the masses but also against the fashion contrarians.  Once sentiment has reached the boiling point, one should go into cash; risk takers can consider shorting the markets.  Finally, less attention is being given to the precious metals sector, so establishing a position now could be viewed as a prudent long-term investment. On the same token, most investors and experts expected the Market to Crash after Trump won and we stated that it would create a buying opportunity just as Brexit did. In fact, since 2013 we have been stating that a stock market crash was a long way in the making and that all strong pullbacks should be viewed through a bullish lens.

Conclusion

When people claiming to be experts tell you what to do, take that advice with a barrel of salt.  You should first check what the masses are doing, how they are reacting to that sector or market. Remember most experts are part of the Mass Mindset, so it pays to take a position that is not in line with theirs. Ackerman has taken a beating on two of his touted positions. To make the story interesting, one is a long position Valeant and the other a short position (Herbal Life) and he has lost on both ends.   He forgot the golden rule; it’s not what you know that matters; it’s what the masses are willing to accept as the truth that matters the most.  The trend is your friend everything else falls in the “foe” category. 

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