A 60% Drop in Stocks, Really?

August 28, 2014 7:26 AM

Yesterday, CNBC noted that two experts were warning of the coming 60% crash.  Now at first I’m thinking, here we go again.  We’ve heard these warnings time and time again, only for them to be wrong every time.  None the less, I clicked on the link and saw the two experts were David Tice and Abigail Doolittle.  

Here’s what you need to know, they’ve both been bearish for years now.  Mr. Tice is the founder of the Prudent Bear Fund and Ms. Doolittle has been noting bearish technical patterns in the face of a huge bull market for years.

Trust me, I’m wrong a lot also.  You trade long enough, we are all wrong plenty of times.  What aggravates me though is how dangerous it is to simply stick to a position.  If your wrong, so what?  Close the trade and find another one.  Being stubborn and sticking to a bad trade or wrong thesis is one of the most dangerous things you can do and is one of the best ways to lose money.  

One of the keys to being successful over time is being able to adapt.  

I call it being a chameleon trader.  The chameleon is one of the most adaptive animals ever.  If they need to turn red to hide, they turn red.  They have no agenda, just adapt and survive.  Adapt or Die is another favorite market saying of mine.

As traders, I think this is very similar.  If the environment changes, you need to change as well - and fast.  Although I’ve been called a perma-bull many times, in late June I started seeing a lot warnings.  Eventually we had the 4% dip (and much larger in small caps)  and pure fear came into the market. That was a clue we were about to rally once again.  Fortunately for me, it all worked out this time.  But my main point is don’t have a bias, just trade what your indicators tell you.  And if you are wrong, accept it.  Don’t be a hero.  

Here’s a CNBC spot I did with Ms. Doolittle back in May ‘13.  The SPX is up a cool +25% since then and she has a lot of the same bearish arguments.  Sure, it’ll be right eventually, but my big takeaway is be very careful who you listen to, as they might have an agenda under the surface you don’t know about.

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