I was reviewing my journals in ET from back in 2008 and 2009 to review some of my mistakes and learnings from those years. It was amazing what happened around Feb/Mar 2009.
Here are some of my posts, here I was arguing FOR the idea of buying stocks in Feb 2009
"So I'm not enthusiastic about US equities but I recognize the R/R is getting worse and the PE is not that bad. I need to find counter arguments to my trade because overall bearishness has became the norm and the last time I was in this position I was long oil equities and ag commodities, if I had gotten carried away I would have lost something like 15% of my networth. "
"It scares the crap out of me to see that the stock market performance is the worst ever for the amount of time it went for
http://www.smartmoney.com/Investing/Economy/Even-Worse-Than-the-Great-Depression/#
Meanwhile we had 0% rates, fiscal packages, no major protectionist move, bank recaps(which in the 30's it took till 33 I believe) and yet the market is worst than during the 30's where money was tighter, smoot-hawley had already passed (although its effects werent fully on yet) and the treasury secretary was an austrian 'let it collapse' type
That could mean that animal spirits are even worse now and people are panicking or that leverage and global connections are bigger and that is having an impact
Either way I'm getting more scared everyday"
Mar 07 2009
"Yeah I can see some of these shorts still working.
I also think it makes sense to increase exposure to assets with positve SP500 correlation.
Its going to be annoying and it will make me work harder because I just wont sit and watch they tank. I'm going to have to find hedges(Like almost half of my networth in USD unhedged, my economic exposure is mostly the BRL so I have a 'long' that is negative correlated to SP500) and short some stocks for protection. Its just that I'm seeing lots of corporate bonds that are likely to be worth par even in stressed economic enviroments
mar 12 2009
"I'm actually thinking the long Brazil short american garbage was a high confidence trade(I would not take profits soon) I could have put on back in mar, it would have worked as brazil put a 40% rally. The problem was I didnt believe in the rally, everything just kept going down and down and
I found hard to buy anything,
I allowed myself to get influenced by all the gloom and doom. I wont make that mistake again"
Jun 2009
My idea back then was that I need to have my bearish bets (mostly short financials and leveraged companies) paired up with bullish positions so no matter what happened I was going to be fine. And I did that to a certain extent. I was short a bunch of companies and long Citigroup bonds, IFLC bonds (a healthy AIG subsidiary). But it was amazing how I was criticized in the journal when I brought up the idea that US equities could be cheap and that I needed to own more bullish bets to balance my bearish ones. Unfortunately I was too young, too new a trading (before 2007-2009, my trading experience was inexistent and all I did trading wise was to read and reread the Market Wizards, Drobny's work and other books, so I was all theory and little practice) for me to trust my instinct of building this 'double' book (I guess it was similar to how long short funds operate, expect my exposure was very much contained)
So I never bought enough of bullish bets, when the march bottom happened and it just kept going, I kept getting squeezed on my shorts with not enough profits coming from my corporate bond positions. And then I fought the rally, even though I had acknowledged that the R/R was worse (to bet against US equities) and it started to make sense to be long stuff.
All I had to do was to buy LQD, Blue Chip corporate bonds (to avoid withholding taxes) or something. But I was heavily influenced by the bearishness from almost everywhere. Its difficult, back then I was too heavily influenced by things like statistics, numbers and figures. It made sense to think there was going to be a depression so it didnt occur to bet to not fight the rally, there were so many articles with 'facts' showing how a depression was going to happen.
Thankfully, by mid 2009 I started to cover shorts and buy Fed futures (which I viewed as a better expression of the bearish trade) and months later my financial puts expired worthless (so, having used them helped me). The fed futures was a home run trade and that ended up making my year as I kept adding and milking that cow. So I was a bit lucky to have had that trade avaliable but there were some big lessons:
-During the 2008 early 2009 collapse, everytime there was a rally in the markets, I would cover some of my shorts. That turned out to be very costly. But when then was a huge panic in Oct 2008 and I decided that it was ok to fight the market. Why? Because I missed the drop. I was bearish all year but covered right before the collapse, as a result I found rationalizations that it was ok to fight markets and you got to wait for a gigantic drop to cover. Effectively the market 'taught' me that rallies were supposed to be sold, not bought. But of course, the exact opposite happened in 2009, there was the year where rallies where supposed to be bought not sold. I guess when I made the shift to total bearishness, a lot of other people did as well and that created the bottom (the market reached its maximum pessimism)
So its a big lesson to me that its hard to be immune to herd behavior. I still got to policy myself in that regard. I have gotten much better at it, as I was able to buy the Brazil panic of 2015, however I did fail to buy BRKB in size at $125 even though I thought it was valuable there (then I was forced to chase it up at $146). I also did buy VRX on the way down, which ironically enough, I consider a GOOD thing. The only investors who dont get burned are the ones who hug cash and never invest. IMO one of the best things contrarians and bears could do is to find a stock that is a falling knife and buy on the way down (up to a 5-10% limit in their porfolios) and then learn to accept the loss, to be ok with it. If one with ok with the worse case scenario then everything is much easier. The problem with contrarians and bears (as I used to be) is the phobia of losing money with the crowd or with optimistic people. that phobia will distort their analysis, unbalance their inner thresholds (the thresholds to buy and sell certain investments) and overall lead to poor decision making.
