Probability
Posted on Sunday, August 28th, 2022
Finally had my big meeting with the orthopedic. The results are in. I have a torn rotator cuff in one shoulder. Only 60% torn. I guess that’s good news. I received a cortisone shot in both shoulders. That hurt a bit. At least I am sleeping again. Hurray!! No golf for another month. I think I need to get out of the house.
Friday’s market action certainly hurt a bit. The big rally off the lows in June was a bit of a head scratcher unless you knew where to look. We were looking at the options market, the technical levels of the market and at systematic strategies. The head scratcher part is usually the systematic strategies. They are price agnostic. They just keep buying or they just keep selling. They don’t care about price. Well, they are back to selling. Another price agnostic strategy is the corporate buyback. As we enter the always rocky month of September those buybacks go dark around the 15th of the month. They enter their blackout period because corporate earnings are about to start. We are also back to negative gamma. Things could get very rocky as Friday was as ugly as it gets, and many were caught wrong footed. We are very happy we have been taking off risk.
Why not sell it all? I had a client ask this question this week. We believed that the market was going to run into trouble, and we were right. Investing is not a game of right and wrong it is more of a game of probability. We thought there was a high probability that the market would turn lower, so we hedged our bets and took some risk off. We didn’t know that the market was going to turn lower. Big difference. We are as underweight equities as we have ever been with very high cash balances. At least we are now getting a return for our cash around 2.25%. We haven’t seen that in a decade.
This is the third wave down in a bear market. The 3rd wave is usually the most severe, the sharpest and the quickest. Let’s see how Monday turns out. We would consider cutting our exposure further for our most risk averse clients. Understand the real money to be made here is missing some or most of the downside – not all- and putting our cash to work at more attractive risk reward levels. It’s time in the market not timing the market that makes the big bucks. Patience and managing fear are the key.
“Short term volatility is greatest at turning points and diminishes as a trend becomes established.”– George Soros
I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd Blankfein
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.