Over on Real Money Pro this morning. Doug Kass writes "consider raising cash now in anticipation of market weakness." Doug cites economic weakness and a market that is detached from reality.
Doug may be correct in anticipating a market turn but this is a good example of how his anticipatory approach differs from my reactive approach.
I don't dispute any of the negatives that Doug uses to justify his position. What I dispute is his ability to time when the market will care about those negatives. As John Maynard Keynes supposedly said: "Markets can remain irrational longer than you can remain solvent."
One lesson I have learned repeatedly in my years as a trader is that market momentum always lasts longer and goes further than you think it will. I have to constantly battle my own inclination to believe that the market is no longer acting in a reasonable manner.
To me the only indicator that is meaningful is price action. My goal is to react to it quickly as it changes and to not try to guess too far in advance what will happen next.
The problem with the anticipatory approach is that you will almost always be early. With a reaction approach you will be late but in general you will realize more gains by riding momentum as far as possible rather than by guessing when it ends.
At some point I'm sure Doug Kass will be correct and the market is going to pull back substantially. When I see something in the price action to confirm that view then I will change my market view. At the moment, I'm still making money and most of the stocks I'm watching are holding key levels.
I know I can't predict the future so I'm not going to try. I'm going to act on hard evidence and forego opinions.