Sitting on an expiry Thursday a random question popped in my
head : What is this term "position trader" (in India sometimes we say
"Positional Trader"?
I googled it and found that as per Investopedia which
defines a position trader as "A type of stock trader who holds a position
for the long term (from months to years)". And how is that different from
a long investor. Maybe the methodology may be different. The assumption that
gets tagged along with trader (whether positional, swing, short term, intra-day)
is that they use technical analysis and price and volume data where as an
Investor uses fundamental information to make a similar decision i.e. to buy
and hold for a long time frame.
Buffet says the three people who have had the most impact
on him as an investor are Benjamin Graham, Phil Fisher and Charlie Munger. Now
currently I am re-reading this iconic book endorsed by Warren Buffett - our
congenial next door grandfatherly value investor.
The book in question is "Common stocks and Uncommon
Profits" by Philip A. Fisher. Now Buffett says this about the book, “I
sought out Phil Fisher after reading his Common stocks and Uncommon
Profits.....When I met him, I was as impressed by the man as by his ideas. A
thorough understanding of the business, obtained by Phil's techniques...enables
one to make intelligent investment commitments".
Yesterday at noon as I was waiting for European markets to
give cues for second half of trading day, I reached Chapter Five in Part One of
the book. Now a confession - at noon when I am sitting and reading an
impressively titled book, my eyes are usually closed, so the other guy in my
office thinks "Sir" is in deep contemplation about what we will do
next. But yesterday my eyes didn't shut. I tried to shut them but they kept
opening.
Perhaps that part of my brain which deals with conflicts was
not letting my eyes shut. So I decided to read Chapter Five and see what the
fuss was all about. And at the end of para two it finally dawned on my dull
self, why my eyes were not closing: There was a line in there which said
"if, having done the hardest part of the job in selecting his companies
properly, an investor had made the small extra effort needed to understand a
few simple principles about the timing of growth stocks." And by now my
eyes were wide open. As I went on to read rest of the chapter it dawned on me
that while Fisher had a taken the example of a manufacturing company and he
linked the fundamental performance of the company to how the market
participants would view the STOCK and how the STOCK would behave and when
should an INVESTOR step in to buy.
Later on in the Chapter after Fisher has finished giving the
thought process of his "timing methodology", he writes," At this
point the stock might well prove to be a sensational buy. ...... The investor
has acquired at the right time an investment which can grow for him for many
years."
And so if a position
trader were to do this and use price and volume to buy with the same intent -
he would in Buffett's lingo be called a "technician". And as he has
famously said - "I have never met a rich technician". He should
probably touch base with Jim Simons, Ed Seykota, Stan Druckenmiller, Bill
O'Neil etc. some of whom are on the Forbes list. But perhaps he knows them
already.
And now in today's day and age an Investor can do the same
thing that a technician does but under the garb of Behavioral Biases. He just
should not just admit that he also peeps at charts sometimes, which are nothing
but the graphical representation of the market participants’ behavior over the
respective time frames. In the very short term - it would be very close to
random and over the very long term it would be pretty much in line with the
fundamentals of the company.
"People that think they can predict the short-term
movement of the stock market — or listen to other people who talk about (timing
the market) — they are making a big mistake," says Buffet. And to be fair
to Buffett perhaps the media takes his word out of context and just highlights
the "timing" part and forgets the short term part. But then this is
Warren Buffett we are talking about. He has direct access to his followers (and
I am one of them) and his yearly letters are greeted with the same enthusiasm
by "value investors" as Apple products as greeted by Steve Jobs’
fanboys. So perhaps over the last 45 years or so, he has had occasions to
rectify this distortion but he has chosen not to.
Towards the end of the chapter Fisher takes off again. He
writes," All types of investors might well keep one basic thought in mind.
This thought is that the current phase of the business cycle is but one of the at
least five powerful forces. All of these forces, either by influencing mass
psychology or by direct economic operation, can have an extremely powerful
influence on the general level of stock prices.
The other four influences are the trend of interest rates,
the over-all governmental attitude toward investment and private enterprise,
the long range trend to more and more inflation, and - possibly most powerful
of all - new inventions and techniques as they affect old industries."
Gasp!! Did Fisher just say that macros are important? But doesn’t Buffett say,”
If you spend 5 mins thinking about macros, you have already wasted five minutes
of your life.”
And now my tiny brain is trying reconcile Buffett’s various
statements, it is starting to shut down and my eyes are droopy. And then the
next question is who am I? Investor, Value Investor, Growth Investor,
Technician, Techno-fundamentalist, Quant (that is for another day). Well I
don't think I can neatly label myself.
Rollover (my positions) and sleep. Too much for one blog.
And then Jim Simons comes into my dream in a Ted talk and he
says “Trend-following would have been great in the ’60s, and it was sort of OK
in the ’70s. By the ’80s, it wasn’t.”. But someone has already blogged about
it so just the links to those blogs below.
I am against the view. But then what do I know, I am half asleep.
Go watch a movie called “Argo”. It’s a movie where the
Americans rescued a bunch of diplomats from Iran but credit had to be given to
the Canadians as it was a classified operation. It was only in 1987 or 97 that
it was de-classified and the truth was discovered.
We know what Buffett tells us he does, and we have no clue what Simons does. Rollover and sleep.
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