“The World Is Mad And Wall Street Is Just Plain Crazy – What’s An Investor To Do?”
The fundamental question faced by investors today is whether or not this is a ‘buy and hold’ market or a “traders/speculators” market. I believe the answer lies somewhere in between these two extremes.
There are two schools of market thought at the moment.
The Buy-and-Holders, famously represented by Warren Buffett, and the Skitterish Traders, represented by any hot shot speculator and Gerald Loeb who wrote his book : “The Battle for Investment Survival” many decades ago.
According to Loeb capital is best deployed “like a rabbit darting here and there for cover.” Stock ownership is a treacherous business that demands strategic maneuvering and a frequent redeployment of assets.
The Warren Buffett buy and holders preach that investors should pick the right company at the right price and as long as the company does well, sooner or later the stock price will rise and your patience will be rewarded.
Loeb disagrees. In his view, it’s foolish to risk money on something that might happen eventually, especially in bear markets when stock prices are depressed for 10–20 years. Ignore the general conditions of the market and buy shares in good companies at the wrong time and you can grow old and die waiting for the prices to rise to reflect the “true value” that Loeb would say was a figment of Ben Graham’s imagination.
But like Graham and Graham’s protégé Buffett, Loeb realized that stocks were the only real chance a person had to increase wealth, but he didn’t think the way to do it was to sit back and be patient and wait for the true value to be reflected in prices. He believed in taking quick profits, buying and selling at key points, and taking advantage of trends.
Loeb tells us to keep a hefty percentage of our assets in cash, and make only small bets on stocks: “Any program which involves complete investment of all capital at all times is not apt to be the most successful one”.
He deploys his capital in drips and drabs, investing in a stock or two, getting out whenever the price drops 10 percent, adding to his position on the rise, selling 10 percent of his portfolio at the end of every year, always with his finger on the panic button and the phone line open to his broker.
He doubts the existence of “any really ideal medium for permanent investment”.
Most of today’s advisors are telling us to diversify into stocks, bonds, foreign stocks, and perhaps gold, to spread the risk. Loeb tells us to put all our eggs in one basket and to watch the basket. On this point, he and Buffett agree : it’s most profitable to own a few stocks than to diversify for the sake of diversity “The great fortunes”, Loeb notes, “are made by concentration”.
“Of course, what everyone knows isn’t worth knowing”, Loeb says, referring to whatever strategy is in vogue on Wall Street at any particular time. At present, what Loeb knows is not at all what everyone knows, which means it is definitely worth knowing!
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please do not hesitate to contact Fenestra for a free review of your portfolio.