Making Money Beats Money Management

You would think upon reaching 5,000, the good times were here. I thought the market was full at 4,500, 10% ago.  Was Microsoft unstoppable?  Who could blame traders for believing a new Gilded Age seemed at hand?

I never expected even the 4,500 market but here we are at 5,000. Nobody cares much that the world’s now a powder keg or what financial markets were like during the Cuban Missile Crisis. 

Fidel Castro stood then jumping up and down, urging his Russian handlers to launch their medium range missiles pointed at our eastern coast cities. Does anybody but me remember the depths the market probed or that the ticker tape ran many hours late? I didn’t have much gelt then, but I laid what I had on the line, actually exceeding my margin maximum. 

Later, I counted up my money from such high pressure trades in IBM, Xerox, and a bunch of five dollar numbers. You do what you need to do if you wanna wax rich. I remember George Soros then challenging The Bank of England by shorting the pound into the faces of adamant denials that a  devaluation was at hand. 

George showed more courage than I did, and has much more money to show for it. Nobody on the Street talks about courage and moxie. Pundits epostulate on asset diversification. I’ve never seen a major bank’s asset manager overweight NASDAQ 100 in good times or bad times.

COMPARISON OF RETURNS, 1900-2012: EQUITIES WIN

Only intensive effort by Jack Kennedy and Nikita Khrushchev preserved the world.  Both cabinets kept us secure from a nuclear conflagration some 60 years ago.

But, the market did panic right before the confrontation of the Russian tanker hauling additional missiles. It heaved to after confronting our naval vessel’s signals. The NYSE’s broad tape, then a Rube Goldberg contraption, was stuttering in fear mid-afternoon when I posted my buy orders. 

I focused on obvious iconic properties like Polaroid, Xerox and IBM.  Then I walked home across the Brooklyn Bridge, sure I had done the right thing. There was a 50% margin requirement then, but I still overbought. Next day I was admonished by the head of margin that my account would carry 100% margin for at least 30 days. If I were a good boy, he’d restore me to the 50% level. 

I was lucky, not so smart. The pivotal precept is never leave yourself open to a total burial. Think of all the cream puffs who rode down to zero stocks like Enron Look at the enormous percentage gains in stocks from their 1961 lows. More than 1,000 percent . Much better than art,  stamps and violins. 

In 1961, the market was basking in the sun when Bell Laboratories' invented the transistor. We sold at over 20 times earnings, then even today, we have exceeded the P/E of 20, after we got as low as 10 times earnings in the deep recession of 1973-’ 74. 

More than earnings, markets thirst for declining interest rates. The Fed as yet is hesitant with home mortgages at 8%. A good market setting needs lower interest rates as well as earnings excitement ahead.

You are what you do. I’m 40% long and loaded in 2-Year Treasuries. This will change, but has nothing to do with investment options. Rather new money making situations. 

Think of Buffett and his Apple play, a great money making position, but nothing to do with money management. Let’s leave JP Morgan and its ilk with their pie charts. This is what’s called money management. It's worth all of 2 cents.