Teaching my readers how to fish

In the past week, I had discussions with several different people about the operating philosophy of Humble Student of the Markets, The objective of the website can be summarized by a variation of an old adage:

Give a man a fish, he’ll eat for a day.
Teach a man how to fish…he’ll want to get a boat.

I don`t want to just give my readers a fish for the day, I would rather help them build their own boat.

Why my boat is different from yours

Think of a building a boat as like building a portfolio. The portfolio management process consists of the following steps:

  1. Deciding on what to buy and sell;
  2. Deciding on how much to buy and sell; and
  3. Deciding on how to execute the trade.
While we discuss step 1 endlessly in these pages and elsewhere, the other steps are equally important. Step 2 is also a reason why what I write in these pages is not investment advice, namely I know nothing about you:

 

  • I know nothing about your cash flow, or spending needs;
  • I know nothing about your return objectives;
  • I know nothing about how much risk you are willing to take, or your pain threshold;
  • I know nothing about your tax situation, or even what tax jurisdictions you live in;
  • And so on…
If I know nothing about any of those things, how could I possibly know if anything I write is appropriate for you? I was asked recently why I don’t post my portfolios and their performance. While posting my trades represent a disclosure of any possible conflicts in my writing, my own portfolios are a function of my own cash flow needs, my return objectives, my own pain thresholds, etc. How could any portfolio that I post be appropriate to anyone else? Your mileage will vary.

Don’t look for a fish

Here is an example of what I am talking about. I had been recently bullish on stocks and both my investment account (inner investor) and trading account (inner trader) got long. My trading account sold and got stopped out of its long position as a result of my risk control discipline, which is a function my risk profile and pain threshold. Subsequent market action indicates that my inner trader got faked out and the market rallied. In that case, it appears that my inner trader was wrong by getting stopped out of his position, while my inner investor was right.

This incident also illustrates the point of the do’s and don’ts of reading the content on this website. Anyone blindly following my trades is in effect looking for a fish. But there is no fish. The markets are not easy. You have to build a boat that’s right for you.I have two boats (used by my inner investor and inner trader). Taking a ride on either of mine by blindly following my trades means adopting my investment objectives and risk profile, which you know nothing about.

My two boats

The chart below shows an example of how my inner trader thinks about the stock market. He isn’t always right, but he has been more right than wrong. His portfolio turnover averages 200% per month, which is not appropriate for everyone.

By contrast, here is an example of how my inner investor thinks about the market. The time horizon is longer. Turnover is much lower, but drawdown risk and pain threshold is higher.

For full details, see:

Neither of those boats may be right for you. The purpose of Humble Student of the Markets is not to give anyone detailed trading advice, including the specific timing of trades. I can only make suggestions, but you have to decide if those suggestions are right for you.

I am not here to give you a fish. I am here to teach you how to fish and help you build your own boat. That way, you can eat for a lifetime.

8 thoughts on “Teaching my readers how to fish

  1. Sure works for me. I’m buying some leveraged ETFs worth less than 2% of my net worth on every red or black arrow. And I’m scaling into and out of longer-term investments depending the inner-investor stance. This site is, to boot, immensely useful because I am learning so much about the markets, and about investing philosophies. The best $199.00 I’ve spent in a very long time.

  2. +1, best $199 I’ve ever spent on information. Is there a lifetime subscription? Cam, your insights here are in the top tray of my tackle box!
    But I was wondering if a post like yours today was going to happen; I’ve been casting into your honey holes and I retreaded to cash as well. 😉

  3. Hey Cam,

    Just wanted to chime in that I strongly agree with both the spirit of this post, and it’s practical conclusions. Frankly, I would be disappointed if you turned this into a “here’s my portfolio” service. You consistently deliver comprehensive and thought-provoking material from technical to macro that helps the reader form their own market expectations. That is a huge benefit to your readership which likely has (or should have) their own decision making framework in place that aligns with their unique circumstances.

    The risk of “being on the hook” for your portfolio positions, aside from the myriad objective/constraint differences you cited, is it risks changing your philosophy on “what is worth highlighting”. As in, maybe only “the best” trades or opportunities should be presented for the sake of perception of track record. I enjoy all your ideas, even the ones I perceive differently, whether or not they align with my own views/risk tolerance etc.

    In summary, I think the content and deliver is excellent as it is, and the current objectives (what you’ve been doing) more that satisfy “the boat building” test.

  4. An embarrassing question. How to interpret the black and red arrows e.g I’m having difficulty linking the arrows to the recent inner trader long SPX trade and subsequent stop out.

    1. Patrick,

      The arrows represent the buy and sell signals of the trading model. Note that the trading model is always either long or short, never in cash. The trading model is a purely mechanical system.

      I run my trading account (inner trader) in a more nuanced fashion. I will on occasion override the model. In this case, I went to cash and decided to stay in cash for the time being because I decided that the risk-reward is not worth it to play the binary outcome of an FOMC meeting next week.

      That`s probably why you can`t always line up the arrows and my inner trader.

  5. Hi Cam,

    This was a simple but great post. My primary reason for subscribing is to gain insight into how you approach investment decisions rather than what your decisions actually are so I have been very happy and this post only reinforced my good feelings. This blog is very refreshing compared to the non-stop punditry present on most of the Internet so thank you again for your efforts!

    -Michael

  6. Showing both the inner trader and inner investor chart are very useful in communicating past performance and your current perspective. May be helpful if they (both) are apart of every post.

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