"Jim, you are missing the whole move! Yo, chillman, you have lost your touch, not that you have one."
That's pretty much the distillation of my Twitter feed last night after a second day of the "Awaken America" rally. My first instinct was to join the president in the battle against Twitter (TWTR) , except, of course, I have even less standing to complain. It would be a gratuitous attack on social media! Who would ever do that?
But instead, I chalked it up to the same thing that I talked about just Wednesday, the reversion to the mean, that you can't have the favored stocks, which are the stocks that do well in a recession, get dislodged from their trend line for long, just like you can't have the contrary trade, the "Awaken America" wager go too far too fast in the right direction. The knaves who wanted me to join in the momentum trade of the moment don't understand true investing.
This brings me back to a learning lesson. I like the barbell. I like a strategy that gives you some winners if the minor chord triumphs, but gives you a terrific gain if the major chord plays out. Remember, I am adamant that the recession is the real issue hanging over this market not the virus and the vaccine. You can't make work for these people who have lost their jobs unless you go all New Deal on the economy, creating entities that plant trees, or do guidebooks or build post offices -- talk about what we don't need now.
But I am cognizant that there are days where euphoria reigns, and you don't want to get your head handed to you. It's good to have something on your sheets, as we call it, that can rally on the America Awakening days, so you don't feel like a lost soul. The barbell keeps you from taking Johnny Come Lately action that has always plagued traders who are bent on buying high and selling higher, something that rarely occurs.
So my charitable trust has some banks and some entertainment and some restaurants and retailers that thrive when people suspect the economy is about to roar, although we don't own any cruise line, airline or deep cyclical stocks. That makes one side of the barbell lighter than the other, but unless you have some sort of worldview out six months -- and mine is that the recession won't be over -- you are doomed to lose too much money from one end of the stick.
Now here's the real, hard-fought lesson that I have for you. In my 41 years of buying and selling stocks -- I know, isn't that crazy -- I have always seen a rhythm to the minor chord, the group of stocks that occasionally get played, but are never the leitmotif. When a certain group of stocks that have been terrific shorts shoot too far as is what happened to the cruise ships, restaurants but also the industrials, then smart people decide they should buy the stocks to ring the register. Remember, short sellers have to close out their trade to make a profit and that means they have to buy the stocks back that they have sold higher.
That buying, coupled with some natural value hunters, cause a floor on Day One, that was Friday. On Day Two, the chase is on, as these stocks become the flavor of the day and the major chord -- in this case the Covid-19 and recession stocks, get sold and sold hard. Inevitably there is a third day of rabid gains as the chasers can't resist. That's the day you do the most damage to yourself, because on Day Four, the whole trade fizzles.
Today is Day Four.
I have seen this pattern repeated hundreds of times in my career. Sadly, on Twitter, it's the Day Three people who most want to separate you from your money. Their sirens must be blocked mentally, if not actually.
And then what happens? The major chord reasserts itself, and has been for almost all of the years of my career, the heavy part of the barbell makes up for the money lost and then some.
That's the pattern. You can try to go against it. In the end, though, you will almost always lose.