There are two things that are never discussed on the radio, TV or on the websites of the mainstream financial media outlets. It’s ironic because they are two of the most important things for investors to understand:
1. Time Frames
2. Position Sizing
I don’t mean that these two concepts are rarely discussed – I mean they are never ever discussed at all.
The media focuses on the following instead:
1. Investment Ideas
2. Directional Calls
3. Breaking News
Those three elements are formulaically proven to gain and hold the audience’s attention and they’re important too, nothing wrong with that.
But position sizing is how good investors and traders keep themselves from making emotional mistakes – you may be holding the best stock in the world but if you own too much of it you will lose sleep and possibly react to signals that would ordinarily be more easily ignored. On the flip side, you can pick winners all day long but if you’re not invested in them to a degree that moves the needle, you’ve essentially failed.
And time frames are important in that they dictate which news or movements should matter to each individual. I’ve said before that if your investing time frame isn’t my time frame, I don’t care what you think about a given trade or posture – and you shouldn’t care what I think either. I’ll give you a recent example – long-term (measured in years and decades) I believe stocks are the only game in town and my preference is to be long the markets. But sometimes this long-term outlook is must become subordinate when the data we’ve found to be meaningful takes a turn for the worse. Barry’s done a pretty good job at communicating our growing cautiousness in his post Time to Reduce Equity Exposure from Friday. Because this is short-term cautiousness.
Anyway, you never hear about time frames and position sizing in newspaper articles or on the radio or TV, mainly because journalists and producers don’t typically do a lot of trading – in many cases their employers don’t permit them to. So it’s hard for them to understand how key these things are.
I’m optimistic that this can be changed and that we can begin introducing these discussions to a mainstream audience. A lot of the pros who do financial media would absolutely love to tackle these ideas and talk more about process sometimes rather than just stock picks.
We talk about this stuff all the time on the blogs, which is great, but I hope to see us sharing it more broadly with investors could benefit from the lessons we’ve learned.