We all have our area of expertise which is where we have spent much of our energies both in terms of education as well in terms of the job we do.
Charlie Munger once said and I quote
“Warren and I only look at industries and companies which we have a core competency in. Every person has to do the same thing. You have a limited amount of time and talent and you have to allocate it smartly.”
As a amateur trader / investor, its normal to jump from one strategy to another in the hope that we find the golden goose. But as we mature, both in terms of age as well as in our ability to understand things better, we concentrate our energies on what works best for us and try to make the best of the situation.
But even the professional gets swayed especially when one’s strategy is going through a tough time. Trend followers for example have’t had that much of returns in recent months even as the rest of the market seems to be having a jolly time. Value investors have doubled / quadrupled their investments while the best we seem to be able to achieve is just hanging on to our capital.
Recently, there has been a spate of discussion on my time line regarding Market Profile, a strategy that has suddenly got the limelight even as many other strategies falter. I personally too got swayed and read a introduction to Market Profile just to get a hang of it.
But does it really make sense to switch gears in the middle? Can a Veterinary Doctor switch to Dental because it seems to make more business sense?
In last one year, we saw a sway of Mid and Small Caps throwing up some crazy returns. But how many investors really have a clue as to what they are buying? How many stocks have some truly great qualities and how many are just the Mom and Pop store that got caught in the Dot Com craze?
I love twitter for the ability to connect with other people and read articles / books which they feel is worth one’s time. But when it comes to trading and results, how realistic are those in the first place? I constantly use the word “Twitter Traders” since I seldom see some one taking losses with most claiming to be making a packet. Since markets, especially derivatives, are places where one cannot win without some one else taking a loss, one wonders as to where are those losers?
Every strategy has its weakness regardless of what their ardent followers may claim, nothing is fool proof. In my own view, over the really long term, the returns of almost all strategies (those with decent expectancy) should be around the same.
So, while 2014 may have been the year for Value Investors, 2015, the year for Mean Reversion traders, 2016 may favor some other methodology. By jumping around, all one will do is miss out on all opportunities since we would never have a domain expertise to know the good from the bad and worse, miss the early juicy part while competing with others for the left overs.
Building domain expertise is a life long endeavor and honestly it is not worth the time or the effort to try and compete with all. After all, despite the fact that software engineer’s get salaries way above what other jobs pay has not meant that we all have jumped and tried to become software engineers ourselves. So, why should our way of investing / trading in markets be any different?
Food for thought?