07/07/2013 Yes Virginia, Evil Does Exist

Sector Model	XLB & XLU	0.90%
Large Portfolio	Date	Return	Days
CAJ	9/25/2012	-2.33%	285
BOKF	2/4/2013	19.11%	153
ABX	4/11/2013	-43.14%	87
TPX	4/22/2013	-3.30%	76
TTM	5/6/2013	-10.06%	62
DLB	5/13/2013	-1.14%	55
MATW	6/6/2013	5.40%	31
OKE	6/17/2013	-9.79%	20
TSCO	6/24/2013	7.80%	13
BTI	7/1/2013	1.71%	6
S&P	Annualized	9.62%
Sector Model	Annualized	22.17%
Large Portfolio	Annualized	28.53%

 

Rotation: selling TSCO; buying CLH.

There is chance in the market: a random randomness that can destroy any trade conceived in a human brain that has evolved to look for order in chaos and meaning in a bottomless void.

I was even privileged recently to take part in a discussion in which two dozen men theologized that evil did not exist at all.

Meanwhile 70,000 and more are dead in Syria, and folks in Egypt continue to starve no matter how many times they try to overthrow a government that is secretly run by the military with civilians only serving as front men in mock elections.

The idea is that good is substantial and that evil is not.

http://en.wikipedia.org/wiki/Absence_of_good

I’ll suggest for us humble investors, however, that there are different layers to this.  First and foremost is another ancient maxim that doctors hold as a first principle:

“First do no harm.”

In this case, “good” is the absence of evil.  It may not be the highest kind of good, but it’s better than the alternative.

So then there are four kinds of traders:

1) Those who do themselves harm.

2) Those who stop doing themselves harm.

3) Those who do themselves good.

4) Those who profit off of the harm others do to themselves.

Most of us fall in the first category.  The Mousetrap is in the second.  Buffet used to be in the third, but is trying to join Soros in the fourth.

Does that make Soros evil?  No.  Folks do themselves harm in the market without any help from Soros.  Soros merely picks up the flip side of the bad trades they insist on making.  So far as the market is concerned, Soros is neither evil nor good.  He simply recognizes something that my theologizing friends do not: evil exists, and its face is the one we see in the mirror.

There’s nothing specific here, in and of itself.  My point is that there is a WAY of looking at the different kinds of investment strategies that are out there.  Behavioral Finance, for instance, offers a tempting suspicion that there are bad behaviors in others that we could exploit to great profit.  And, while that is perhaps possible, it is infinitely easier to take the lessons there to curb our own bad behaviors so that we can stop throwing money away.

Most of us are struggling to stay out of the first category – and the thing that keeps us in that category is the delusion of being in the fourth category.  Forget it.  Right now it is the citadel of a select few, and very soon that citadel will only be inhabited by robotic black boxes that have no idea WHAT they are exploiting, only that they can make money when they do.

First, do no harm.

So, with apologies to St. Augustine, evil is NOT the absence of good.  For us, good is the absence of evil.

As for the market – I have an experimental model that needs fine tuning and further testing this week, but a preliminary view of it this evening shows that the broad market is favoring small growth stocks. 

That’s mildly bullish – enough for another pop I suspect – though not enough for a sustained major bull trend.  It’s too early to throw in the towel, and too late to take a nap in peace.

Tim