Picking up pennies in front of a steamroller

Over on an investing website today, with the stock indexes posting egregious losses, someone posted the sort of pablum one typically hears from long-only, un-hedged money managers, who skim management fees off of big piles of money for a living. I’m not going to link to the fellow’s post, as I don’t mean to attack him personally (I’m sure dozens of others spouted similar sentiments today), but here is an excerpt, followed by my response.

The conventional wisdom sage:

The Dow Jones Industrial Average has notched another loss this morning, a triple-digit decline as I write this, with some wondering if the blue-chip index can remain above the 10,000 mark.

All sectors are in the red.

What should an investor do?

My advice?

Take a deep breath and think things through. Act, but don’t react.

Why? Because it’s always a mistake to confuse “action” with “execution.”

Action is simply doing something. Jumping up in the air is an action, but it doesn’t get you anywhere.

Execution, however, is something more. It is taking a constructive step toward advancing a goal.

Does a series of losses on Wall Street’s indexes change your investment goals? It sure doesn’t change mine. Not one iota. A broad-based decline probably affects the value of both of our portfolios, but it should in no way affect the fundamental reasons we bought any of the equities we own.

In other words, why should temporary pricing fluctuations have any effect on the management of one’s portfolio? If anything they should be viewed as a potential opportunity to buy, not to sell.

He continued in that vein a while more.


What investors should have done was buy umbrellas when it was sunny out. And, if they had the temperament for it, taken on some short exposure as well.

For me, today is an up day. HGSI, PXP, and AKS, which I am short, are all down single digits today. My puts on SPY, DIA, BPT, and BHP are all up double digits today. My puts on GLD are up as well (single digits).

Being a long-only, un-hedged investor in a secular bear market is like picking up pennies in front of a steam roller. How many times do you want to get flattened?

The image above is from Photobucket.

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