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Flexibility, Mobility and Vigilance: 3 Keys to Market Survival


I have had the honor of serving in both the United States Army and the United States Air Force.  One of the tenets of the Air Force is, "Flexibility is the key to airpower."  Airmen being willing to think outside the box have changed the face of warfare – like squeezing B-25s onto the deck of the aircraft carrier Hornet just 4 months after Pearl Harbor in order to let Japan know they had awakened a sleeping giant as the Doolittle Raiders rained fire on 5 Japanese cities.


The motto of one of my former Army units, Special Forces, is “De Oppresso Liber.”  While the translation is not literal, every SF soldier knows it as “To Free the Oppressed.”  Special Forces’ primary mission is to train – often behind enemy lines – indigenous peoples who have a stake in their own future to defend their own lands from interlopers.  To survive without resupply, living off the land, requires more than flexibility – it requires mobility and constant vigilance.


I would suggest to you that the same skills – albeit from the comfort of your reading chair or computer screen -- are also absolutely essential to your survival, as well; in this case, market survival.


That’s why, if you are looking for someone who will merely validate your own opinion of the markets, it would be a waste of your time to add us to the list of thoswe you follow -- or even to read any further.  We  believe in Flexibility, Mobility and Vigilance.  If you hold strong opinions about what the market is “destined” to do tomorrow, you don’t need us.  We don’t have a clue what the market will do when it next opens.  We only know that we must be flexible in our thinking, highly mobile in being willing to move into cash or out, and ever vigilant for both opportunities and the scent of danger.


So let’s say you’re a dyed-in-the-leather bull.  Well, there were plenty of commentators, writers, gurus and such who made you feel smart about your bullishness when they told  you not to worry about the decline in 2008 and early 2009.  “Just buy and hold,” they intoned.  “After all, the market always comes back.”  Of course, they lost you 50% of your portfolio value but, if you are someone who’d rather be right than rich, they were there to make you feel good about holding on… and on …and on.  We have no such bullheadedness.  Instead, in April of 2008 we warned SA readers that the bear would likely get worse (here).



On the other hand, if you are a dyed-in-the-fur bear, for the last nine months of 2009, even after the market began to correct to the upside, you could have found someone who told you that “tomorrow” was the day the market was going to plummet.  They made you feel good about your innate bearishness because, for the entire year, they unearthed factoid after factoid about lousy balance sheets, rotten earnings, crummy employment figures, etc., etc.  The only problem was: it didn’t matter.  The market moved up 60+% from the bottom in March.  If you missed that up-move, did it matter that you “knew” it couldn’t go up?  We are agnostic when viewing the market – we had no such bias, so in March 2009, we believed the panic was over-done and saw it as a bell ringing (loudly!) to signal the bottom (here).



Unlike many other gurus, bloggers, and talking heads on the Constant Neurotic Bull Channel, we still don’t know what the market is going to do when it opens Monday.  But we do know that outsized profits in boring industries which are up 50, 60 and 70% in a short period of time may in itself be an indicator a correction is due.  That is to say, we don’t pat ourselves on the back because our stocks are up – it makes us distinctly uneasy when profits come, not because we have brilliantly researched an arcane sector that the rest of the world hasn’t yet caught on to (our preferred way to make money!) but simply because “everything is up.”  That’s why we began to take profits and evolve a new strategy this month ( see here, for example). 


Don’t think we don’t make our fair share of mistakes, as well.  By being ever vigilant, constantly mobile, and pragmatically flexible, we’ve had false starts where we entered or exited positions too soon.  But, then, we think a small loss is better than a large one, and we aren’t piggish – if we exit too soon and leave something on the table for someone else, well, that’s better than staying too long and having our head handed to us.


All gurus are ultimately vindicated.  The ones who told you to buy and hold forever will one day be correct.  The markets will come back.  The question is, will you still be alive to enjoy it?  And the guys who have been telling you not to fall for this sucker rally – of 10 months and 4,000 Dow points?? – will crow “I told you so!” if this is the beginning of a decline of some magnitude.  But how much did they cost you by being dogmatic and inflexible rather than flexible, mobile and vigilant?   I sometimes get comments saying, “Ha!  That’s not what you said 4 months ago!”  Well, duh, that was 4 months ago.  If the market is doing exactly what I hoped and looks to continue doing so, fine.  But if events have changed?  We change.


As long as I’m offending at least some segment of the SA readership, let me give you yet another reason not to follow us!   We won’t offer constant reinforcement of your zealously-held beliefs by providing two or three articles a day.  I have a business to run, so if you need a steady diet of factoids, you’ll be disappointed here.  When I do post a new article, it won’t contain information you could have Googled yourself.  Nor do I synthesize for readers what someone else has said.  I figure if you want to know what Lloyd Blankfein said about Goldman’s bonuses, you can find the video or news article yourself without me providing it.  All you get if you follow me is an article or two a week, on a subject that I find interesting, from my personal perspective and in my own words.  It may not be right, but at least it will be something you won't see anywhere else.


Well, that and the knowledge that we have no axe to grind, we don’t believe we’re infallible, we are willing to change direction if we suspect an enemy ambush, and our only strongly held belief is that Flexibility, Mobility and Vigilance will keep us alive to fight another day…





Author's Disclosure: There are no securities mentioned in this article.   However, seeking  flexibility in uncertain times, I am now researching some  very interesting income plays as a place to stash cash if the decline continues.  I call these “The UN-colas of Income Investing” and will write something in the next few days about them…


The Fine Print: As Registered Investment Advisors, we see it as our responsibility to advise the following: We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of the staff of Stanford Wealth Management, and should not be construed as personalized investment advice.

Also, past performance is no guarantee of future results, rather an obvious statement if you review the records of many alleged gurus, but important nonetheless – for example, our Investors Edge ® Growth and Value Portfolio beat the S&P 500 for 10 years running but will not do so for 2009. We plan to be back on track on 2010 but then, “past performance is no guarantee of future results”!

It should not be assumed that investing in any securities we are investing in will always be profitable. We take our research seriously, we do our best to get it right, and we “eat our own cooking,” but we could be wrong, hence our full disclosure as to whether we own or are buying the investments we write about.