I am fully aware that my mistakes over the past few months have been numerous and far-reaching. Above all, I have been steadfastly skeptical regarding the sustainability of the domestic economic recovery and in the view that the foundation for a sustained move in the U.S. stock market was on shakier ground than the consensus believed.
The consensus seems to have grown emboldened as share prices around the world have risen parabolically over the past 12 months. By contrast, I have opined that the risk/reward of U.S. stocks has turned negative, as it is my view that some of the recent signs of economic growth in many industries represented little more than a statistical expansion from historically depressed levels. To this observer, those signposts of growth are now too readily extrapolated by the bullish cabal. They may be signaling a false sense of prosperity.
All this said, I have been wrong — at least, Mr. Market has been saying so!
I may still prove to be correct in my economic and investment conclusions; as Warren Buffett has written (in paraphrasing Ben Graham), the market is a voting machine over the short run, but it is a weighing machine over the long run. Regardless of the eventual outcome, however, perhaps the single most important ingredient to being a successful money manager or individual investor is to control risk and avoid large losses when one’s baseline expectations go awry.
The discipline of recognizing the errors in the timing of one’s analysis and, even more important, respecting Mr. Market’s price action are integral parts of the investment equation — whether or not the price action is later confirmed or unconfirmed by the fundamentals.
There are many ways to control risk but sucking it up and stopping out losses before they get too unwieldy are the best ways and most straightforward strategies to control risk.
Taking small losses is part of the game; taking large losses can take you out of the game.
– Doug Kass, “Moving On”, TheStreet.com, March 22 7:54am EDT
The same thing applies to me……