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The Drift, by Victor Niederhoffer
For the past four years I have tried to reduce the prevalence of all doomsday talk on this site, as I believe it misses the forest for the trees in that the return from stocks is some 5% per year more than bonds (6% + 5% growth rate, versus 4.5%), and I felt that the doomsday arguments were economically nonsensical in that they didn't take account of the fundamentals of entrepreneurial ability to earn a return and investor willingness to part with money for that return equilibrating economically and empirically at 10% a year, regardless of the backdrop of negatives, usually already discounted, and overwhelmed by numerous positives. I have tried not to allow the this site to be littered, as are so many financial sites, with hateful anecdotes about the weakness or problems in this or that, as I felt that this will miss the main chance, the beautiful woman with the 10000-fold return per century, lighting up the future with a torch in her hand. There is a certain satisfaction today as the Dow trades above 12,000.
Before anyone upbraids me for patting myself on the back, note that I've posted 1000 memos, and written two books, discussing the long term drift in stocks and its inevitability over reasonably long periods. I have saved countless individuals from the doomsday scenario so prevalent on other sites, and which could have overwhelmed this site. Why should I not remind others of these long term factors at the dinner party I host, as it should be a cause for mutual celebration? Like most, I have not participated as much as I should have in this long term drift, but I have eschewed the terrible catastrophe of ever being short, and my constant drumming of this message has been a highlight of my productive years, and thank goodness I was able to at least bend a few at this dinner party in that direction or at least against a self destructive alternate.
I N D U - - D O W J O N E S I N D U S . A V G W 10/18 12025.50 T 10/17 11950.02 M 10/16 11980.60 F 10/13 11960.51 T 10/12 11947.70 W 10/11 11852.13 T 10/10 11867.17 M 10/ 9 11857.81 F 10/ 6 11850.21 T 10/ 5 11866.69 W 10/ 4 11850.61 T 10/ 3 11727.34 M 10/ 2 11670.35
Richard Gula adds:
There is no one lonelier in the world of fast money than the lonely bull. AbelandCain has had the public leaning the wrong way for years. Staying positive in this business strains every element of your soul. Keep smiling through the pain of optimism!
James Sogi responds:
The question is: how many have been long the whole bull run since July? The second more important question is how do you capitalize on such bull runs while avoiding May's bear market?
Prof. Gordon Haave replies:
I am not a full time speculator, although, as I say almost every day "soon" I will be again. I would, however, proffer that the very nature of our good friend Mr. Sogi's question is at the root of many problems that speculators have. The drive to miss every downturn causes one to miss the upturns. We see this time and again on studies of individual investors, and how they routinely earn 4-5% per year instead of the 10% year offered by the market. Catching the upturns is more important than missing the downturns, simply because there are more of them.
Most of us are trying to do much, much more than "catch the drift". If one uses leverage to accomplish that, then suddenly avoiding the downturns, or at least the worst of them, is very important if you want to avoid ruin.
But let's all be clear that to simply catch the market drift, one shouldn't worry about the downturns at all.
P.S. Here is an example of someone with probably little detailed knowledge of the financial markets, yet caught the drift (money quote: "she liked blue chip stocks").