Know Thyself

One of the most important steps in becoming a successful investor is to learn ones strengths and weaknesses. I pride myself on being able to keep a level head when investors are panicking or getting over excited. The current crisis in Europe scares me and I am no longer playing with that strength. I get very scared when investors panic about Europe.

If the European dominoes were allowed to fall at least 5 sovereign nations and almost every bank in the World would likely go under causing a major depression. The German people are against anymore bailouts and Angela Merkel, the German Chancellor, has taken a lot of heat for the bailouts she has already agreed to. Sovereign bonds will be under renewed attack if forcible action is not agreed upon at tomorrows summit. Yet, Angela Merkel's hands are somewhat tied.

It is for these reasons, whether justified or unjustified, that I am scared. As a result I am unlikely to make large directional bets until there is a resolution to the crisis. I am currently positioned modestly net long.

5 comments:

Anonymous said...

I disagree.  Banks are bluffing with a pair of 6's because world does not end when they fail.  They'd like people to think world will fail if they go under.  It would be a few years of hardship, but banks can be rebuilt in weeks with printed moneys better spent that way than salvaging and bailing legacy.  This is just a bailout of the uber rich with boogeyman threats.

Anonymous said...

Real catastrophes come from natural disaster, famine and disease.

Tsachy Mishal said...

I am not trying to figure out what World policy should be. I just want to be positioned correctly for what is. If the dominoes were allowed to fall I would not want to be caught long even if it is better for everybody in the long term.

Anonymous said...

Yes, but I don't think it's the doomsday scenario as you describe.

frank r said...

There's also the danger that the can is kicked down the road again, so the unwarranted fear of armageddon dissipates and people start to focus on more mundane things. Like the fact that the economy is not growing fast and won't be growing fast for years to come, that consumers are under immense pressure, that eventually all this sovereign debt will lead to higher taxes on the wealthy, probably in the form of higher corporate income taxes, and higher inflation and higher interest rates, etc. Stocks are perpetuties. What happens next year matters little compared to what happens over the course of the next 30 years.

Everyone has bought in because they can't be left behind, and everyone knows that what they bought isn't a bargain, and everyone plans to get out the door before the other guys when the selling starts. This is a formula for a quick 20% fall in prices. There's the real danger.