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Think We Are Negative?

One has to vulgarize his messages so as to get them safely into the brain of the audience.
Arnold Bennett

Trading is not for the weak. There is no room for anything less than the truth. Our site spells out both positive and negative trading truths. If you only want the sunshine happy message telling you what you WANT to hear — you are at the wrong site. But we still receive the “whines”. Listen to this email recently received from reader Dale P. Carriere:

I have received 3 Newsletters so far. All I have seen are pure negative comments. The easiest thing in the world to do is belittle and give negative remarks about others. It tells me something about this group. Discontinue my subscription if you would be so kind. If ever you come to give positive enlightening information I would reconsider enrollment.

And another email recently written to Turtletrader:

It seems that you eschew any trading methodology that is not your own, can you explain why your website exerts so much energy debunking others? While I find your website to be incredibly useful, sometimes your critiques of others feel like manic rants. I’d rather learn more about your philosophy than reams and reams of why so and so doesn’t know what he is doing.

This site is 600+ pages! The vast majority of the site is dedicated to explaining trend following on the merits. But perhaps we have not been clear to our intent on some articles? When we rip an article or point out the futility of some news account, we do so with the intent of educating readers. We do definitely spend some energy pointing out hypocrisy and fallacy. Our critiques, which surely could not be said to encompass our total site, help to teach trend following philosophy. We feel with so many millions of people fooled by the likes of AOL, analysts and buy and hold craziness — much can be learned from breaking it all down.

Good Examples of Breaking Down

Great comment from Aaron L. Task on how the majority of investors (unfortunately) think:

Late last week I received an email from a dear friend who’s worried about his holdings in a large-cap growth fund, which are down some 35% five years ago. When I suggested he consider selling the fund and get into something safer, my friend replied, in sum: But I’ll lose the money I’m down. And the light bulb flashed. My friend wasn’t worried about potentially losing what he has left but about selling at a loss and risking not recouping those funds in the next big rally. I know he’s not alone. If he were, investors wouldn’t have put another $4.8 billion in equity mutual funds in May, nor would year-over-year inflows be up 88%, as the Investment Company Institute reported last week.

What is the breakdown? These people all holding on violate the first principle of taking the first loss. The first loss is always the best one. What do we mean? If a stock is tanking straight down you can’t assume it will go back up. You must have a plan to exit when certain price action happens and then exit. Holding on? For what? WorldCom shares had many signals to exit, but those that held on with no exit plan have nothing now.

All you can do is follow the trend. Follow the price to wherever it may go. You can’t predict it. Hope serves no purpose.

Daniela Deane, a Washington Post staff writer points to WorldCom for an example:

Pension funds from Maryland to California that manage retirement money for many of the nation’s schoolteachers, police officers and firefighters are among the many losers in the WorldCom Inc. debacle…Losses from WorldCom holdings totaled about $52 million — the worst loss ever — for Maryland’s pension system, said spokesman Joseph Coale, and come on the heels of $100 million in losses on the stock of Enron, Tyco and Global Crossing after their share prices collapsed. It’s been a year that must cause every American great concern, Coale said. Ethics have taken a holiday in the business world. Though the WorldCom losses total only one-fifth of 1 percent of the Maryland fund’s $27.8 billion portfolio, Coale said he’s had to reassure retirees. They want to know if we’re going to pursue it. I say, ‘Yes.’ They want to vent…Michael Fitzgerald, treasurer of the state of Iowa, echoed the sentiment. This money has been stolen from us, he said, noting that officials of the Iowa fund are now selecting a law firm to represent them in their first-ever recovery suit. At the end of May, the $15 billion Iowa Public Employees’ Retirement System, the state’s only large pension fund, held $28 million worth of WorldCom bonds and $3.7 million in stock. We’re still trying to establish how much of that money we’ve lost, he said. Most of it, I would say. We’ve been hurt. Officials at the $34 billion Virginia Retirement System estimate that unrealized WorldCom stock losses — losses aren’t realized until securities are sold — presently equal about $46 million, but will probably go higher. We’ve lost a lot of money over the past two years in the general downturn of the stock market, said Nancy Everett, the fund’s chief investment officer. But this is different. This was lost by way of fraud. The $149 billion California Public Employees’ Retirement System, the country’s largest, seems to have lost the most — $590 million — according to spokeswoman Pat Macht.

What is the breakdown? We agree completely that fraud was rampant. But surely WorldCom stock sinking like a brick for a year was an indication there was a problem? The price was telling you about the unknown future by dropping like a brick. Why would any of these pension firms be holding these shares still today? What does that say about their ability to do their job? Their ability to trade properly? These are same pension fund gripes heard during Enron. Was their only strategy really just to buy and hold? There was nothing more?

Trend Followers on the other hand use stops. There are specific reasons to exit based on price action. When certain price action unfolds you exit. You are not left holding WorldCom at 11 a share.

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