At the end of the day, no one knows where the market is going before it gets there.
When we get to extremes, odds always favor reversion and so there are a ton of guys who have been hawking that trade before today and this morning.
The thing about trading the snap back though is that one time in 100 we do not get it, selling intensifies and the ship sinks.
Bill Miller beat the S&P500 ($SPX, $SPY) for 15 straight years after fees before he got crushed buying financials into the teeth of the credit crisis.
John Paulson caught the credit crisis but went from the greatest trade ever to the greatest fade ever, gloriously on both counts I might add, in a manner of a few years.
No one knows for sure.
And so it goes…
I watched the BBC interview last week with Alessio Rastani. People were mortified at the excitement he expressed at the opportunity of being on the right side of a crash.
This is moral relativism at its finest. The guy’s a trader. Its what he does.
Is there a hint of sociopathy in it? Perhaps, but its tough to pin that down when its legal and when we don’t know much more about the guy.
On the other hand, I have spoken at length with short sellers who are saddened by “seeing the doom” up ahead and deeply conflicted about capitalizing on it. My take there is that those betting against the market are at a significant disadvantage if they are unable to compartmentalize their empathy for man. Trading is emotionally taxing enough without having the weight of the world’s misfortune on your shoulders.
To the rest of us, as long as people put their money in the markets, they will get themselves into risky situations they don’t fully understand and ride losers too long and sometimes all the way down.
Its uncomfortable not having control of a big situation and so people pretend they have control or do something else to avoid the anxiety related to the realization. They listen to brokers or others who exude confidence but really also have no idea.
Meanwhile, during crashes, the upper middle class will hide their quarterly mutual fund statements at the bottom of the mail pile and avoid them like phobics avoid the Brooklyn Bridge.
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