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First, I don't consider myself a bull or a bear. I'm just interested in being on the "right side of the trade" as often as possible.

Recently I read of a hedge fund that has been "short' the market for sometime and is really suffering. To add to that suffering they "doubled down" on their short investments as the stock market has pushed higher and higher.

The fund has been led by someone who made loads of money in the crash of 2008 and early 2009. Now he is humbled and perhaps tempted to "capitulate"...i.e., throw in the towel.

If fund managers who are short the market do "capitulate", will that cause a climactic temporary top to this amazing "mini-bull run" that has been going on now for almost 8 weeks?

As one colleague wrote recently about this and the lessons derived from it all:

The market, at times, does not give a damn about logic, or consistency, or rationality. For highly intelligent individuals with a penchant for logical analysis, this can be a hard – a very, VERY hard – lesson to learn. Hard beyond all rational measure.

I've paid dearly to try to learn that "very, VERY had lesson to learn". Recently I used some triple-leveraged ETFs (symbols FAZ, TZA and EDZ) to "place my bets" that the market would correct big-time before March was over. Oy have I been wrong and punished.

At the same time I had the good fortune to buy some wonderful bargains back when they were "on sale". Among them was Exxon (NYSE:XOM), Conoco-Phillips (NYSE:COP), Anadarko Petroleum (NYSE:APC), Prospect Capital Corporation (Nadaq:PSEC) Goldcorp (NYSE:GG) IAMgold (NYSE:IAG) and Silver Wheaton (NYSE:SLW).

Many times our propensity to be diversified and to buy sectors that have been out of favor or that seem very undervalued at the time have offset our mistakes and mistimings.

The writer who shared the above comment with me about the bear hedge fund and the shellacking he took in recent months also had a profound observation too important not to share:

Another lesson learned – thankfully, again, from the sidelines – is the pointlessness of trying to front-run a market climax.

To wit:

• You do not front run a market climax.

• You wait for clear sign that the orgiastic frenzy has peaked.

• Upon noting a potential sign, you test the waters with starter positions.

• If brushed back, you retreat and wait for another sign.

• At some point, your tester bets will be validated by follow-through price action.

• Only THEN, upon clear confirmation via price action, do you plunge.

Those who ignore this lesson (such as the prematurely committed fund) may wind up being the short-covering fuel that takes the market to its onanistic peak.

After almost 37 years as an investor I tell you another thing I've learned from experience. Bull markets and up moves are slower and last longer than bear markets and downward corrections. BUT....market corrections are usually quicker, sharper, faster and more unexpected than the upside rallies that "creep up" or "melt up" the markets to the levels we're now witnessing.

Oh well, live and learn, and ponder the reality that we don't always have to get the timing right to make lots of money. All we have to do is be right more often than we are wrong, and reduce the damage from our wrong decisions before that damage gets too large. That is one of the hardest lessons for traders and investors to learn.

My more careful market colleague wrote,

As I write these words I am flat – no positions – and happy to be so.

I would be happier still had I not missed the clear March 1st swing point – the last clear juncture where a swing trader could have gotten “long and strong” – but I cannot fret too much.

I saw that swing point, noted its presence, and did not have the presence (or the prepatory materials) to act in full measure. This is not a great failing. Just another mistake to be analyzed, dissected and learned from.

For a trader to fret and get upset at this juncture – over not being sufficiently that is long – is more or less an undesirable, artificial, and shallow response to the loud rejoicing of the crowd. Of course there will be times when the dog has its day, i.e. when the crowd outperforms.

"How can it be otherwise, especially given the nature of true opportunity – and its habit of showing up in most concentrated form after the crowd has gorged itself on greed (or fear)?

So we live to fight another day, and we all know we can't time the markets. We can however, "time the risks". For me that includes having the patience to wait as long as necessary to buy as low as possible. If you going to short the market, you wait until stocks or the sector you want to short gets extremely overbought.

One final lesson: You will never succeed if you are afraid to make mistakes. Just admit them as quickly as possible and learn from them. Analyze what went wrong and strategize honestly about how you can avoid making the same mistake again.

One of the great prizes of a successful investor and trader is humility. Humility never comes from being right and always on the correct side of the trade. As they say in the aviation industry, "Nothing flies better than experience" and that is true in the investment world as well. Next time we will be wiser and more realistic, not to mention patient!

Disclaimer: Nothing in this commentary should be construed as investment advice or guidance or any recommendation to buy or sell any financial instrument. It is not intended as investment advice or guidance, nor is it offerred as such. It is solely the opinion of the writer, who is NOT an investment counselor/professional. All content of this commentary is solely an expression of his personal interests and is posted as free-of-charge commentary and is subject to error and change without notice. Please do your own due diligence before investing in ANYTHING. The presence of link to a website does not indicate approval or endorsement of that website or any services, products or opinions that may be offerred by them.

Disclosure: FAZ, TZA, EDZ, XOM, COP, GG, IAG, SLW

Source: Lessons From a Humbled Bear