Felix Rohatyn was a shrewd man.
He possessed what he called a “refugee’s sense of value”, which he picked up while on the run from the Nazis.
When France was invaded in 1940, his family fled from Paris and embarked on a multi-year trek to get to the US, paying their way in gold coins he’d hidden within his toothpaste.
Following that experience, he said you should only truly value that which you can carry in your head, or in a toothpaste tube.
He went on to become a very accomplished investment banker, most famous for bailing out the New York City in 1975 when it went broke. He passed away at the fine age of 91 in early December last year.
To be clear, Rohatyn was not one of the “bastards” I refer to in the title – those are further down. Before we get to that, there’s one line of his, a pearl of wisdom, which I believe is especially relevant today:
“The ultimate power is the absence of desire. I believe the most powerful man is a monk, because he is not corrupted by power.”
While central banks like the Federal Reserve are built to look like temples, those that inhabit them are not monks.
If you give a man the ability to print money, he will find an excuse to exercise that power. It doesn’t matter what the excuse is, the itch to flex that muscle will be scratched.
And so it has been. The Fed performed a double cut to interest rates yesterday, bringing its main rate down to 1-1.25% – all to cure coronavirus, of course. The emergency cut, taking place between the regular Fed meetings, is the first since the financial crisis.
It’s been good for gold, stored in toothpaste or otherwise. Cheaper paper money means pricier real money. As soon as the announcement went up yesterday, an ounce of gold got thirty pounds dearer. And the gold miners that were panic-sold last week, have now been panic-bought…
But interestingly, the rest of the stockmarket isn’t liking it. After years of the leaping for joy at the prospect of low interest rates… this time, US stocks didn’t rejoice as they used to, and the S&P sold off, almost 3% at the time of writing.
This is something our publisher Nick O’Connor was most frightened of – markets no longer reacting positively to more money printing. If this continues, well The End of the bull market may indeed be nigh.
But that’s just his opinion. He wants to share with you some critical indicators which he’s watching, to know whether this really is The End, or the start of a melt-up that begins with fear and ends with a blood-surging squeeze upwards.
He’ll be broadcasting it on Friday with a special guest. Top on the agenda are the critical levels the world’s major stocks must reach, to know if it’s the beginning of a long way down.
What makes a killer investor?
Don Novick was so successful as a trader that he retired aged 46 in a castle in the Scottish Highlands. He now spends his time filling his wine cellar and collecting antique watches. When he was asked what made a great trader, he said this:
“I would say that one of the biggest differences when it comes to separating out the really good traders is how they seem at close of play, when trading has finished and they’re turning it in for the day. You know, trading is a profession that, if you’re the least bit vulnerable mentally, can completely undo you. I’ve seen traders crying, and being physically sick, at the end of a hard session. The pressure, the environment, the people… it’s all pretty brutal.
“But what you find with the guys at the very top is that, at the end of the day, when they’re heading out the door, you just don’t know. You can’t tell by looking at them whether they’ve raked in a couple of billion or whether their entire portfolio has just gone down the pan.
“And there it is in a nutshell. Therein lies the fundamental of being a good trader. When you’re trading, you cannot allow any members of your brain’s emotional executive committee to knock on the door of the decision making boardroom, let alone take a seat at the table. Ruthlessly, remorselessly, relentlessly, you have to stay in the present. You can’t let what happened yesterday affect what happens today. If you’re prone to emotional hangovers, you’re not going to last two seconds on the trading floor.”
I wrote yesterday how emotions and investing make very poor bedfellows. But how does one actually separate the two? Novick goes on:
“… once a trade has been executed, the really good traders… will have no compunction at all about getting out. About the whys and wherefores, the pros and cons: about whether it’s right or wrong.
“… Exiting a trade will be a cool and clinical decision that has no subsequent emotion, no lingering psychological after-effects attached to it whatsoever…
“I think the idea of killing professionally, be it in the market or elsewhere, demands a certain ability to compartmentalise. To focus on the task at hand. And, when that job is finished, to just walk away and forget it ever happened.”
You may have clocked by that last paragraph that Novick is not exactly normal. In fact, he’s a psychopath. Both self-confessed, and diagnosed.
That excerpt is from The Wisdom of Psychopaths by Kevin Dutton, which explores how some psychopaths end up becoming so successful in their fields. Novak’s lack of emotion and attachment made him extremely effective, albeit in a disturbing way.
Now of course, I’m not recommending you try to behave like a psychopath. But it is possible to distance your emotions from your investing decision making – if you make the decisions ahead of time, before emotion can play a role.
Provided you’re not a day-trader, and are investing over the longer term, you can set clear stop losses and/or targets for each position in your portfolio as soon as you acquire them.
That’s why knowing exactly where to place your stop losses and position sizes ahead of time is key. And this cannot be done on a one-size-fits-all basis. But it can be done relatively simply – if you know how.
That’s what Nick will show you on Friday.
Tomorrow, we’ll be taking a look at just how much bull this market can bear…
Until then,
Boaz Shoshan
Editor, Capital & Conflict
Category: Market updates