It's OK to Be Wrong; It's Not OK to Stay Wrong

Cathie Wood said as recently as last week that her greatest fear right now is that her flailing stock holdings in the the ARKK funds would get bought out at (what she perceives) low prices. 

Retail investors continued to pour money into markets as recently as Thursday despite the wild price swings and lack of progress buyers have been struggling with for much of 2022. 

Simply put, these are categorically not the headlines that you tend to see at buyable, major stock market bottoms for any meaningful period of time, as there is no clear sign fear, panic, let alone capitulation yet. And when you couple that with the technical reality that every single stock market index is operating below a declining 200-day simple moving average, it all adds up to classic bear market action which has to see capitulation. 

Now, the exact itinerary of how we get from the current state of markets, arguably the "recognition" phase, into the "panic" phase where retail buyers begin to emotionally sell shares and the likes of Ms. Wood become more concerned that her holdings are going to zero rather than a superficial concern they get bought out too cheaply, is obviously the tricky part of playing a bear. 

However, there is one universal theme: It is OK to be wrong as a speculator, but it is not OK to stay wrong.

Bull markets, especially the QE, Fed-fueled one we have seen, were known for being uniquely forgiving to longs, to the point where it spawned a cottage industry of put sellers, call buyers, professionals dip-buyers, even the esteemed HODLers. 

But bear markets are the equivalent of a forest fire clearing out the underbrush from the forest floor. They actually seek to burn out the prior bad habits from the bull runs, and that even includes the bond market now burning out the monstrous interventions by The Fed which impeded proper price discovery for years on end. 

There is also another common theme I am seeing quite a bit of recently, which is to be expected at this stage in the bear: Many retail players are repeating the old mantra, "The market cannot be timed--Keep buying and holding and don't worry." While I agree over the very long run markets are seemingly designed to go higher, history also tells us at this fairly early stage in the bear the risk is that human emotion takes over, and that sooner or late the panic phase of the bear will see those very same market players throw in the towel on their once fearless approach to a bear market. 

Interestingly, back when I was more of a cocksure bull myself in 2010, 2011, 2012, I saw very few people, especially of the retail variety, calmly repeating the old buy and hold mantra. 

If nothing else, I am writing this as kind of time capsule which I have learned from prior bear markets, as this one is playing out in real-time. The prior bull runs, especially in these recent cycles, actually rewarded greed, arrogance, outsized risk-taking, and hubris. 

I can assure this market will continue to punish those traits. 

If you think it is "too late" to sell in a bear market, you are most likely still early in your sales compared to where we are going.