RSSStorm Lessons From Florida
By Jim Farrish | August 20, 2008 | 11:42 AM | 1 Comment
Tropical Storm Fay, for those of you in the dry area of the country, is sitting on top of Melbourne, FL. As coincidence would have it that is where our offices are located. So far we have had more than 11" of rain in the last 15 hours. That means flooding! If you have tuned into the weather channel or other news you have seen pictures of our lovely streets full of water. The good news is the storm has stopped moving and is expected to dump another 5-8" of rain. So needless to say we are working remotely from our homes to get data out between all the fun of the storm.
The projection was for some rain and wind as the storm passed to the west through the center of the state. However, the storm had a different opinion and the center passed over us and has now stalled providing us more rain than we ever asked or imagined. These projection by the weather forecasters are very similar to the analyst and of course people like me. We all spend our time studying and applying our trade to help others as well as ourselves manage money. But, when it is all said and done it is a hypothesis that will either be right or wrong. The key is being prepared for either event. Having lived in Florida my entire life, hurricane preparation is nothing new. The same should be true in building positions within our portfolio. You have heard me say it many times, before you take a position answer the three questions. How do I get in, how do I get out and where am I going. Simply put, entry, exit and target. This allows you to be prepared if your hypothesis doesn't work out.
A recent example of this was the downside in natural gas. Looking at (NYSE: UNG) you can see a nice uptrend in play, if you owned it you were on happy street. After hitting a high near the $64 mark the picture turned ugly. The storm warnings were for a small sell off and then a bounce. Of course it did not play out that way and if you didn't have a stop in place you had more damage than you should have. This goes back to my earlier point, entry, exit and target. The exit in this case could have been as simple as the 50 day moving average. Building a hypothesis is one thing, having a strategy for implementing it is another.
This is how the markets have been over the last 12 months. No matter what the expectations, they have either been worse, i.e. financials or they've been better than expected, i.e. retail. Either way, our best laid plans for our portfolio have been challenged along with our mindset towards managing our money. Be prepared, define your entry, exit and target prior to implementing your hypothesis.
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