I'm writing this week's blog post from the air on my way to Penn Mutual's Educational Conference. What did we do before Wi-Fi on planes?
The January employment number has just been released, and it was a strong number with significant positive revisions to prior months. Hourly earnings were up 0.5% for the month and 2.2% for the last year, making this the highest level since 2008. The labor participation rate increased as well.
As I sit here, the market feels 180 degrees different than it did a week ago and how it traded during January. Stocks are up sharply, crude oil is up, interest rates are rising, the Greek debt situation is calmer, and I find myself thinking about some of the trading lessons I've learned during my career.
Before I joined Penn Mutual 21 years ago, my first co-op job was at PNC Bank. I learned a tremendous amount from their analyst team about fundamental analysis. One member of the team knew that I was starting to trade OEX options for my personal account and gave me a set of 30 trading rules that sit on my desk to this day. I can remember his words clearly: "If you can master these rules, and it won't be easy, you will be a successful trader." He was right, and the trading rules have never steered me wrong. When I have been successful, I can demonstrate that I followed the rules, and when I have lost money, I can always point to a rule I neglected to follow.
In the choppy, volatile market of today -- one that feels like we are at a critical inflection -- Rule 22 stands out: "It is preferable to lose your opinion rather than lose your money." Rule 22 tells us that when the price action and your opinion do not coincide, stand aside until they are in harmony. Many a trader has ultimately been proven right in their opinion and yet lost their capital during the interim period required for incubation. This reflects an over-concentration on the distant future and not enough on the short term. When developing a position in the market, be prepared to wait and move in concert with signs from the price that the situation is starting to come around to your point of view. Opinions are of little value to a speculator unless and until the market acts accordingly.
We expect the current market to continue to exhibit significant volatility due to low liquidity, diverging fundamental factors, and the emergence of global competitive currency devaluation. We believe the reversal in market fortunes will have some room to continue. Key technical levels have been recently violated, which should lead to some follow through. This market volatility creates opportunities for the disciplined trader, but remember Rule 22 in determining your decisions and timing.
< Go to Monday Morning Perspectives
This blog post is for informational use only. The views expressed are those of the author(s), and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.
Any statements about financial and company performance of The Penn Mutual Life Insurance Company or its insurance subsidiaries (each, “Client”) made by the author is provided with a written consent from the Client. Penn Mutual Asset Management is a wholly owned subsidiary of The Penn Mutual Life Insurance Company.
Opinions and statements of financial market trends that are based on current market conditions constitute judgment of the author and are subject to change without notice. The information and opinions contained in this material are derived from sources deemed to be reliable but should not be assumed to be accurate or complete. Statements that reflect projections or expectations of future financial or economic performance of the markets may be considered forward-looking statements. Actual results may differ significantly. Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate.
Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results. All information referenced in preparation of this material has been obtained from sources believed to be reliable, but accuracy and completeness are not guaranteed. There is no representation or warranty as to the accuracy of the information and Penn Mutual Asset Management shall have no liability for decisions based upon such information.
High-Yield bonds are subject to greater fluctuations in value and risk of loss of income and principal. Investing in higher yielding, lower rated corporate bonds have a greater risk of price fluctuations and loss of principal and income than U.S. Treasury bonds and bills. Government securities offer a higher degree of safety and are guaranteed as to the timely payment of principal and interest if held to maturity.
All trademarks are the property of their respective owners. This material may not be reproduced in whole or in part in any form, or referred to in any other publication, without express written permission.
