Most investors believe it is a dead cat bounce
The S&P 500 has rallied 17% from its low and the usual question arose - is this a dead cat bounce?
This is a time where many investors will look for statistics in market history in order to get some guidance.
Some may look at the state of the economy.
No matter which methods were used, the polls which I have put out in the past two weeks showed that more than 70% of the voters were bearish and believe this is a bear market rally or a.k.a. a dead cat bounce.
I have been holding the bearish view too but what if I have been wrong?
I want to share the mental model of fallibility...
No one is correct all the time. Even Buffett has made mistakes.
As investors, we may start off with a view on the markets. But the markets can move contrary to our views. It is dangerous to pit our ego against the markets by insisting we are right.
Our starting premise should always be that our views can be wrong. Be fallible. It provides us with the humility to change.
One quote on being fallible from Fooled by Randomness by Nassim Taleb,
"One weekend, Saulos [referring to George Soros] exhibited in his discussion a large amount of bearishness, with a complicated series of arguments that the narrator could not follow. He was obviously short the market. A few days later, the market rallied violently, making record highs. The protagonist worried about Saulos, and asked him at their subsequent tennis encounter if he was hurt. “We made a killing,” Saulos said. “I changed my mind. We covered and went very long."
Easier said than done. It is not easy to change our views.
Sharing a personal experience: my momentum strategy signaled it is time to buy stocks again after staying in cash for a period. I have to go against the bearish part of me and deploy the capital. But not all, I deployed half. A middle ground.
My bear view has definitely soften but not totally. I think the bull case has a chance although I am still suspicious of it.
I believe predictions are often wrong. Hence the next best alternative is to be reactive. And to be reactive, we have to accept that we are fallible.
P.S.: Market directions are more important for short term trading. Long term investors don't need to care about short term price gyrations. But being fallible still applies - the stock you believe is good for long-term may also be wrong.
This is a time where many investors will look for statistics in market history in order to get some guidance.
Some may look at the state of the economy.
No matter which methods were used, the polls which I have put out in the past two weeks showed that more than 70% of the voters were bearish and believe this is a bear market rally or a.k.a. a dead cat bounce.
I have been holding the bearish view too but what if I have been wrong?
I want to share the mental model of fallibility...
No one is correct all the time. Even Buffett has made mistakes.
As investors, we may start off with a view on the markets. But the markets can move contrary to our views. It is dangerous to pit our ego against the markets by insisting we are right.
Our starting premise should always be that our views can be wrong. Be fallible. It provides us with the humility to change.
One quote on being fallible from Fooled by Randomness by Nassim Taleb,
"One weekend, Saulos [referring to George Soros] exhibited in his discussion a large amount of bearishness, with a complicated series of arguments that the narrator could not follow. He was obviously short the market. A few days later, the market rallied violently, making record highs. The protagonist worried about Saulos, and asked him at their subsequent tennis encounter if he was hurt. “We made a killing,” Saulos said. “I changed my mind. We covered and went very long."
Easier said than done. It is not easy to change our views.
Sharing a personal experience: my momentum strategy signaled it is time to buy stocks again after staying in cash for a period. I have to go against the bearish part of me and deploy the capital. But not all, I deployed half. A middle ground.
My bear view has definitely soften but not totally. I think the bull case has a chance although I am still suspicious of it.
I believe predictions are often wrong. Hence the next best alternative is to be reactive. And to be reactive, we have to accept that we are fallible.
P.S.: Market directions are more important for short term trading. Long term investors don't need to care about short term price gyrations. But being fallible still applies - the stock you believe is good for long-term may also be wrong.
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Giovanni Ayala :
