Windows of Opportunity: The Real Holy Grail?
We received great news today from our friends (and EV website members) Gil Morales and Chris Kacher (a.k.a. Dr.K). As of month-end, April 2011, their MoKa Market Direction Fund is up 49.57% year-to-date before management and performance fees, and 41.87% net of fees, vs.
S&P 500: 2.96%
Dow Jones Industrial: 4.13%
NASDAQ Composite: 3.37%
Russell 2000: 2.64%
Gil commented: “What Dr. K and I find is that we are very compatible running a fund together, and instead of running separate halves of the fund as we tried to do with Oceane I we are running it jointly with great effect. Also, having a consistent "ethos" or philosophy towards the market as former O'Neil managers without others in the mix causing distractions is a critical factor with respect to maintaining a strong and even psychology, the most important aspect of managing money in my view. Given the risk controls we are using I believe there is zero chance of any significant drawdowns outside of what is normal for the model.”
I found it was a striking similarity with Pascal and I running jointly our methodologies to build the robots. But even more striking is the similarity of our conclusions: in order to do well in this market, one must absolutely wait for the optimal window of opportunity to act. Gil and Dr.K saw that window in AGQ when silver cleared the $31.50 high and they went in big at that point. They exited on a sell signal almost at the top around SLV =$50. Since then, they remain almost all in cash with a small position (10%) in DGP, waiting for the next window to develop. They have noticed that their fund does very well when it operates in this manner. The test fund was up over 55% being invested less than half the time, so this is a key factor in their success: Patience, followed by decisive, though less frequent, action.
Isn’t it exactly the same message from the conclusions of our own GDX robot report?
In the past 44 months, the GDX Robot found 42 strong buy/short signals, with an average return of about 6% per trade that on average lasted 9 trading days.
That is an uncompounded low-drawdown return of 72% per year, also being invested less than half the time!
Patience, followed by decisive, though less frequent, action on optimal windows of opportunity should become the norm for all traders in this group. Maybe the legendary Trading Holy Grail is hidden behind this simple discipline!
Billy
PS Gil Morales will be on Fox Business News discussing today's market action and some individual stocks with Liz Claman at 1:40 p.m. Pacific time, 4:40 p.m. Eastern, and 9:40 p.m. London time.
Five Disciplines To Be A Great Investor
[url]http://www.ritholtz.com/blog/2011/05/many-hats-great-investors/[/url]
let me try a little thinking on what I've found
As a contemporary cultural anthropologist, I can say it has been difficult to adjust myself to the absolute practicality of investors. In teaching, there remains the element of missionary or monastic life. Professors are paid poorly in the USA and elsewhere, but they justify their sorry state on the grounds of the greatness of their callings/research and on importance of the transfer of knowledge through (and from the point of view today) archaic means of transmission (classes, tutorials, etc.). Traders also live a life of the mind. The greatness of their achievements are measured by capital, expanding social networks, and notoriety. In many ways, the most successful university teachers have adopted these measures, as well. The difference of course is money. It is clear to me that no professor in the USA can compete with a successful investor in the game of capital accumulation. And since the world is capitalist, the bounty of the world will be steered their way, too.
From the stand point of the practicing academic, this seems artificial, anemic, heartless, and artless. Traders seem to ignore the reality of capital itself as they play their games of liquidity. Meanwhile, anthropologists and others are perplexed by questions such as: what precisely is value? How is it measured, accrued, transferred, and politicized? These questions are no doubt germane to trading but perhaps not to traders. Of course, value can change in a heartbeat. Every trader knows this and has experienced it. Every trader implicitly acts as though there is no absolute store of value-- even though they may claim that it is gold, or real-estate, or even the common stock of Dow Chemical. There are some "gold bugs" who see intrinsic value in objects and perhaps rightly so. But the fact remains that most, if not all traders, would exchange their gold or other store of value for something that could guarantee them more of what they desire. Anthropologists would look at traders and their fixation on liquidity and wonder how can the acts of so many be rendered liquid during a sale (as Marx noted in his study of commodity fetishism)? Traders, however, will consider liquidity as a dynamic store of value itself. Both are operating in the realm of the mind. The difference again: the academic will speak of the abstract in terms of social justice, the good or beauty while the trader intends to realize new surroundings and opportunities via the machinations of his or her intellect, ambition, and skill.
It is saddening to me to note that most traders, if they attend to academic thought at all, consider only the work of economists. But academics are impoverished too by their lack of knowledge about the sophisticated working of traders. In particular, the antennae of quant-oriented traders are very fine. They pick up money flows, statistical values, the slightest changes in seasons, multiple and simultaneous auctions, and many other elements of quantitative analysis. Indeed, it has occurred to me since the first day I began to use ThinkorSwim that the complexity and artfulness of the trading platform is one of the magnificent accomplishments of this epoch. Outside of business school, who knows anything about ToS or Tradestation? Both sides suffer from their ignorance.
I’m also struck by how much traders depend on unwritten rules of decorum in the same way academics do. I am struck every day by how well certain pivot and resistance points are respected by traders. Only when a market is flying away like a beautiful balloon or selling off like-- what else?-- suicidal traders during the Great Crash of ’29 are boundaries not honored it seems to me. Of course, prices are manipulated and weak hands shaken out. But this nastiness is understood by experienced hands. In academics, social codes prevail in writing as well as conversation and debate. Boundaries are well understood, and those who violate them pay the price of ostracism and derision (or, we might say following Pierre Bourdeiu, with the loss of their [I]cultural[/I] capital).
Ok. This is enough for me tonight. I wonder if there is any interest in such reflections? And surely, I would accept comments; for this is really my first attempt to write anything of this sort on this topic. I wonder now how I got started on this topic. ...
