On Calling Tops and Bottoms

• Posted by Adam Warner
• on November 3rd, 2009

Hearing some crowing and some “must read this” and yada yada yada from those that “called” the top.

Calling the top should not be anyone’s real goal unless you aspire to a career in punditry. It has very little value whether you’re trading or tending to a portfolio. If you caught a top or bottom incredibly well once with actual money, you got lucky, don’t expect to do it again.

But if you do hear someone claiming they did, ask the question they’ll never ask them on TV. When did you start calling it? The decline sure seems cataclysmic if you listen, but just take a look at this SPY chart here. We’re down all of like 6-7% from the top. We’re still up over 20% since early July. We’re even still higher than we were about 4 weeks ago. Constant top-calling and/or shorting got creamed before you finally caught it right. Riding the bigger trend and even first shorting now after the drop and the VIX surge has actually done very well.

I’m not recommending that, just highlighting that what sounds like brilliance on TV is terrible money managing advice for everyone else.

Look, I believe much of the macro bear argument. Much of the “recovery” is smoke and mirrors and deflating the dollar and Ben and Timmy making it rain with taxpayer money. But so long as the trend was higher, why try to be a hero and fight it? If your goal is to look brilliant, by all means, call turns. If your goal is to manage money well, you’re better off joining in later.

 

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