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Thomas H. Kee Jr., is President and CEO of Stock Traders Daily and author of 'Top of the Market to You!' Mr. Kee's reports and analysis are currently featured by Reuters Research to their institutional clients. He serves on the board of many companies and provides economic analysis and... More
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  • How to win championships using ETFs: TBT, DDM, TWM, SRS, SKF, VXX 0 comments
    Jun 7, 2010 10:32 AM | about stocks: TBT, DDM, SKF, SRS, TWM, VXX

    We have sold TWM, SRS, SKF and VXX recently, and we are now long TBT and DDM with strict risk controls in place.

    Before you read this, please relax.  I am sure the declines on Friday have undulated nerves, and if you read other Newsletters, you may be on the edge of your seat.  Some of our membership have been sending me Doom and Gloom pieces.  First, change seats.  Instead of an erect and uncomfortable wooden chair, switch to a comfortable leather office chair that reclines when you want it to.  After you settle in, continue reading.  Remember, the cup is always half full. 

    Appropriately, I have pulled a few timeless quotes from John Wooden_s catalogue to begin this commentary.  The historic UCLA coach passed away at 99.  His words still hit home, even in our industry, so I have included them here.  Please listen to them carefully. They helped him produce four perfect, undefeated seasons as the head coach of UCLA Basketball.  More astonishing, his philosophy helped him win 10 titles in just 12 seasons. 

    John Wooden quotes:

    Preparation:

    "Failure to prepare is preparing to fail."

    Embrace opportunities:

    "Things turn out best for the people who make the best of the way things turn out."

    You can do it:

    "Do not let what you cannot do interfere with what you can do."

    Become proactive, and never diverge:

    "Ability may get you to the top, but it takes character to keep you there."

    Challenging as it is, college basketball is different every year.  The coach must mold new players into stars, and already developed stars move on to the NBA.  This rotation happens every year, and it challenges every coach to remain consistent.  That begins with an underlying philosophy that transcends the immediate.  Our industry is not so different.

    With Parallels, each one of us is talented, and we all can become stars.  However, I can hear the debate already; this is real money we are talking about, not a basketball game.  Although that is obviously true, it is also real life.  Therein lays the parallel. 

    The four quotes above are extremely important.  Without knowing the similarities to Wooden_s approach beforehand, this is what I encourage every day.  I want you to prepare in advance, I call it preparing for the worst.  Then, we should always stick to the plan, because the plan helps us make the best of the way things turn out.  From there, we should embrace our competitive advantages, but never forget the reason we are controlling risk.  Ultimately, our unique reasons give us the character to stay on the path towards the Comfort Zone.

    Sappy as it may sound, this is exactly what we all must do to stay ahead of the curve.  In fact, if staying ahead of the curve required us to overcome a hurdle, 75% of that obstacle would be comprised of our approach and mindset.

    The current market environment does not change our approach.  We do not waiver.  The business we are in requires us to take calculated and educated risks.  Environments like this influence others to stray from their disciplines, and that often distorts the calculated risks that have been predetermined.  We are not in that camp.  Instead, we will make the best of the way things turn out, and adjust to the market over time.  This does not mean we need to take immediate action, but it does suggest that calculated risks are acceptable. 

    Difficulties surface when investors carry the burden of underwater positions with no correlated risk controls, and no plans to sell if they need to.  For example, positions held since 2007, which are 30% or more underwater, make those investors fearful of market declines.  As a group, we should not be fearful, because we no longer hold long-term buy and hold positions in any asset class.  That has been my guide to everyone.  Going into the recent top, I said it again.  Sell all long-term assets and become proactive.  I am pleased to know that many of you listened this time.  In 2007, no one wanted to listen.  Now, our lightened burden changes our perceived risk considerably, and opens the door to proactive strategies.

    Unfortunately, if your intention is to remove the risk completely, you will never be satisfied.  Risks will always be there because we are in the business of taking risks.  More importantly, we are also in the business of controlling them.  This allows us to accept any outcome, and to take advantage of changes over time.

    John Wooden:  "Failure is not fatal.  Failure to Change will be."

    I have not made any changes to any of our strategies yet, but  I have added commentary to the Position Trades, Strategic Plan, and the Stock of the Week.  Changes to Position Trades may come in the next few days.  Please read the website for details.

    Good Trading.

    Thomas H. Kee Jr.



    Disclosure: Author has no positions in these ETFs.
    Stocks: TBT, DDM, SKF, SRS, TWM, VXX
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