What went wrong with my trading

My long term "safe play" for preserving wealth (months-years) by placing money into assets such as "cheap resources", "cheap land", or "cheap food" and diversify away from bonds this year is a correct long term play. Time will tell in the months and years to follow. There may be investments that do better, however, I am trying to blog the "safe" play that has greatest potential to weather the financial storm the world is facing.

In the recent past, I blogged about DOW 10,000 as a target. This is still to me a high possibility in the next few months, but in the recent past weeks, the market plummeted off of an upper boundary down to lower boundary I have been watching. (see graph on right) My long term belief is the DOW will break below 6,000, and I truly believe this is a bankable event. This isn't based upon a religious conviction, but over significant issues the world faces, and is not being addressed. Please refer back to my previous posts for rants. :)

From 2006 to October 2008, I "shorted" the market, bet the market was going down. During that time, I had the mass media, friends and family state I'm pretty much off my rocker. My trading account at its worst lost 50% of its value in less than 10 trading hours, mainly due to what I believe was corrupt actions by the government. In any event, during all of these events I had an easier time trading vs the last two weeks.

Why? Because I KNOW the global economy and stock markets cannot overcome 8 years of fiscal fraud in a matter of months. The market must play out, the economy must work through its issues, and this will take time. Over that time, the market will not enter a long term bull mode, but will continue to move up and down, but make no mistake in a long term trend down.

So when I was "wrong" on timing trades, I had the faith that if I could make it past the hump being faced, the market would come back in my direction. Sure, during 2006-2008, there where plenty of times I was REALLY right, but I covered some of my shorts out of fear from the red numbers across my entire screen, only to see the market reverse downward sometimes within hours. But over-all, I did good. As a matter of fact, EVERY trade I made from 2006 to 2008 shorting should NOT have been covered. All shorts where right.

In the recent trend trading, I reversed my thesis, that the market would rally, and it did from 7.552 up to 9034 in a matter of 5 weeks, a 20% rise. Quite a force! But I got greedy, and fixated on DOW 10K. Hindsight being 20/20, I should have lightened up after such a great run. So this past week, I got "shaken out" of some of my long positions. Why? Because my main trades that hurt me was betting that the market will rally, a direct violation of my long term thesis. Therefore such bets are high risk, since at any moment, the long term trend could become an instant reality, and therefore I could not have faith to keep the trades on the table. I would not be surprised that this week sees a great rally, one that I will profit from, but not nearly enough as I would have if I didn't get shaken out.

So why am I writing this? Because it was my cone to Jesus moment. I realized that I cannot and should not try to hit a home run in trading. I need to preserve my own wealth, and follow my own general theme. And I will try hard in 2009 to stick to the basics and that is:

1) Buy "cheap" resource stocks, be it Oil, Gold Miners, Food Companies, Silver Miners, and other cheap depression resistant trades. Do NOT chase resource valuations up, wait for them to fall hard. As an example, I will not buy gold at 850 an ounce, it is historically high.
2) Do not trade more than 50% of my cash position into these plays, and "add" to them when moments like this past Thursday happen.
3) When I feel like king of the world, as I did two weeks ago, lighten up more. Take the cash when you have it.
4) Listen to bloggers such as Gary of Smart Money and Mish with respect. I don't have to go 100% in their direction, but their blogging of "Trend change" needs some respect, in short-term observations.

In 2006-2008, I did items 1-3 the entire time, however at the "bottoms" (market rallies since I was shorting) Item 2 I went over 100% of my entire savings short. It paid off, but past results don't indicate future return. :)

With changing my strategy, I am hoping to minimize my losses and give me the faith and confidence to trade correctly with what looks to be an incredible volatile year. This faith will only be shaken when steps are taken to completely and honestly fix accounting standards and restore mark to market valuations for all asset classes.

As a "bonus", if at any time, the world economy does flirt with disaster, I'll be positioned well to ensure my family's financial security. As another bonus, this follows closer to my own advice for those who don't trade frequently, aligning with my own long term advice.

As for how badly I was hurt, basically all of my gains from 7552 to 9035 was wiped out, but not a nickel lower than my net worth at DOW 7552, so really I can't complain on keeping 2 years of gains during a market collapse.

Back to my regularly scheduled blog postings. I have a lot to say, and I better get cracking at laying out the facts, as I see it, and hope that I help everyone out there with a better fiscal security. As always before trading on any bloggers dribble, consider this disclaimer.

I do take solace that my trades far exceeded Barron's advice, enjoy the video below.