Last week, SPY closed below its 25-day moving average on Tuesday, so I closed the CS|MACO long SPY position Wednesday morning. Wednesday, SPY rocketed higher, closing back above the 25-day; but the AAII.com survey also came out Wednesday after the close, and individual investors have gotten bullish enough again to make the CS component bearish. Bearish plus Bullish = Flat, so CS|MACO is once again on the sidelines.
CS saved money that MACO would have lost, since SPY has closed lower than Wednesday the succeeding two trading days. These periods of consolidation, where SPY hovers around even for a while, can get expensive. I'm glad I have those individual investors to fade.
Speaking of fading individual investors, the topic of conversation over coffee at the office this morning was privatization of Social Security so as to give individuals the ability to manage their own retirement investments. The general consensus is that this would be a great thing... for us professionals. Investing well is hard: like any other probability-based activity, looking backwards in time at what you should have done makes it look very easy. But actually doing the right things traveling into the future takes a great deal of effort, discipline, time, and -- dare I say it -- luck.
I'm trying to stay away from the political quagmires around dinking around with Social Security. Whether I'm for it or against it doesn't change my premise here, which is that individuals managing their own money, in the aggregate, will severely underperform just about any index you care to use. Despite my "morons" tag I throw in whenever I talk about individual investors, it isn't because they're dumb. It's just that they have other things on their mind than investing. The folks taking the other side of their trades (i.e. fading them), on the other hand, are professionals. They spend all day every day thinking about markets, and most of them have vast resources at their beck and call for maximizing their return.
The reason investment banks such as Goldman Sachs have done so well and generated such staggering amounts of wealth is because they're playing against amateurs: you. So the next time you get the urge -- if you ever get the urge -- to argue for the privatization of Social Security, think about who is more likely to profit in a trade between you and Goldman Sachs. If you answer, "Me! I am! I'm above average!" then I applaud your confidence. But please don't be insulted if you find me on the other side of some of your trades.
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