To Be Correct!

Here's one fantastic blog posting from Dr. Brett: The Need To Be Right Versus The Need To Make Money

• Over the last few days, I've had the opportunity to talk with everyday investors as well as my usual contacts with prop traders and portfolio managers. One of the distinguishing themes in these talks has been stubbornness versus flexibility: the willingness and ability to maneuver and adapt to changing market conditions versus the need to stick with positions and be proven correct.
  
  Among the traders, the ones who have done well in the recent market decline are those who have been selective in their risk exposure, riding short-term market moves, limiting overnight headline risk, and shifting positions tactically to adjust to volatile conditions. They have focused on making money--and limiting loss of capital. They've been quick to recognize when they're wrong, at times getting stopped out once, twice, three times before finally riding the anticipated market move.
  
  The traders who have performed most poorly are those that have been stubborn. They have had strong views of markets and have stuck with those views, even in the face of markets that have moved against them. Convinced that markets are overdue for reversal, they have faced large losses as weakness has led to further weakness. They have been more concerned about being right than making money; they've been reluctant to be stopped out, instead waiting for markets to validate their opinions.
  
  Interestingly, I'm seeing the same dynamics among individual investors. Some have made proactive adjustments to their portfolios to reduce risk, including reducing exposure to vulnerable investments (financial stocks, preferred shares, high yield bonds); some are also revising their views of the financial future, looking for themes and sectors that will benefit in a changed economic environment (firms that generate cash and are less reliant on borrowing; firms that appeal to consumer value rather than luxury; safe yields among beaten down bonds). Other investors are frozen, immersed in hope that "things will come back". They remind me of the dot-com investors who, stunned by losses of 50% in their holdings, insisted that a bottom was at hand. Sadly, many of these shares declined by more than 75% before we saw a durable market bottom--and many of those companies never survived the decline.
  
  This is one of the paradoxes of trading and investing: you need distinct views to put your money at risk, and you need to persist with these views in order to ride winners. At the same time, you can't become married to these views; you need to quickly revise and even abandon your outlooks in order to limit losses. We can trade and invest for ego needs, and we can trade and invest to make money: over the long haul, we can't do both. It takes a strong ego to formulate and act upon one's ideas; an even stronger one to step back from those ideas in the face of non-confirmation.

To be correct.. !!!!

Yes, isn't this what we are seeing in most investors?

The clear and precise changes in the business economics could been seen for so long already.

Yet many chose to be stubborn and delusional and they simply refused to accept the changes. Instead they held on strongly to the believe of long term investing.

Now do not get me wrong, I am a staunch believer of long term investing too. There is absolutely nothing wrong with the investing theories. However, has one questioned about the application of the theory itself? For example, I am realistic about the LIMITATIONS in our market and I am also aware of the lack of the long term COMPETITIVE ADVANTAGE for most of our local business itself and I am also aware of the rather STRONGER CYCLICAL nature of our local business earnings.

How?

Just buy and hold, in regardless?

I would if the company we are talking about is if the same exact quality as a Coke!

And for sure, there is always a strong chance that tomorrow will always be a better day. Crisis like boom times, they come and they go. One day, the present crisis WILL pass us by and it's simply paramount that we are there to profit from it!

Oh yeah the truth does hurt so bad, doesn't it?