Wednesday, March 01, 2006

Cub, Then Bear

Today's rally is really frustrating the bears. The rally really shouldn't be, so it angers them and the bears cover their positions to wait for colder weather. But the bears are wrong!

What's a bear?

A bear is someone with a distinctly negative outlook for future prices. A bear is someone who backs up his outlook with money and gets short the instrument. A bear is someone who is going to get really hurt if his outlook proves to be wrong.

So, why are the bears wrong?

Contrary to the obvious, it's not because we have a rally. The bears are wrong because they can't afford to stay right.

It's really simple: You want to be a bear? Become a cub furst. Then grow some claws and teeth and gain some size. With time you get bigger and you become more like a grown bear. By the time you reach maturity you're growling and likely collecting dividends for having grown up.

And if you don't make it to full age, you shouldn't have been a bear to begin with. No harm done.

Lesson? Position sizing, risk management, asset allocation. You don't make money only when you are right. You make money when you can afford to be wrong.

Cheers,
/Dmitry

2 Comments:

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At 1:40 AM, Anonymous Rick J said...

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