“Early on I realized two of the great icons of America, apple pie and motherhood, were the worst experiences in the world. Apple pie has fat, cholesterol and too many calories. A good mother is to be revered, loved and admired. At least one out of five is a good mother. I think I make myself clear.”
The goal of trading is to win as much profit as possible. Trend following does not catch tops or bottoms. It shoots for the meat of a trend. If the market goes down you are seller. If the market goes up you are buyer. You don’t buy too high or sell too low.
Seth Glickenhaus is an 88-year-old contrarian. He is the proprietor of Glickenhaus & Co., a Manhattan investment firm with more than a billion dollars under management. He is a fundamental guy.
Why would we write about him? First read his comments:
You see discount stores doing beautifully, whereas other stores, even the ones that cater to billionaires, are beginning to curl up. The consumer is up to his neck in debt. The Dow could go down to 8000, possibly to 7000 or 6000, within a year or two. The multiples are too high and the averages are too high. Foreigners will reduce their exposure or just sell their dollar investments outright and take back their money to invest locally. The consumer is up to his neck in debt. Because of the work the Federal Reserve has done bringing interest rates down, a huge number of cars and a huge number of homes are being sold. The average person doesn’t ask what a car or a home costs, he asks what the carrying charge will be. Home-building has been very good. The one sustaining influence that’s maintained itself has been construction, but I suspect we are on the verge of seeing that go south. [What else troubles you about the economy?] There’s still too much capacity. [You think this could be turning into a depression?] Not only could be, it will be. We are not there yet — the unemployment rate isn’t even at 6% yet — but it is going to go much higher.
Seth is offering economic wisdom. He has been around for a long time. His statements are sound. But from a trading perspective how could you act off his wisdom? You can’t.
It is quite all right to discuss and debate economics living as a trend follower. However, there is just no way to connect the economic debate to the trading method and its success. Trend followers win because they ignore fundamental economic data.
Optimism Gone Wild
“And no prior market mania saw anything resembling the magnitude and excesses of the most recent stock-market bubble. Yet most investors, according to recent polling, expect annual stock-market returns to resume their recent 15%-20% pace momentarily.”
“By [Robert] Shiller’s measure, investors are still remarkably optimistic. His latest monthly P/E reading still sits at 26.5, which is above its 1966 peak of 24.1 and not far from the September 1929 high point of 32.6. He sees the same complacency at work in the monthly surveys he sends out to a random group of individual investors, under the aegis of the Yale School of Management, asking questions such as how much they expect the stock market to rise or fall in the coming year or if stocks were to drop 3% tomorrow, whether the stock market would continue lower or rebound the following day. Surprisingly, investor responses indicate greater optimism now than at practically any point in the ‘Nineties bull market. These survey results absolutely astonish me, he says.”
The two quotes above exude optimism. Investors are offering predictions in their poll answers. Their predictions (disguised as simple optimism) are futile. You can only react to the hand you are dealt. Trend followers do not predict.
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