Excess Supply is a Bitch …. Don’t Trust Demand… and Risk Management Rules

  • Posted by
  • on August 12th, 2011

I have let all the downgrade talk settle in and watched the tape hard this week. Mother of God, this shit is broken :) .

The blamers are everywhere – mostly TV and Huffington Post – which is why I like prices…they just don’t lie.

Stocks almost never go from hot to cold overnight. There are all kinds of entry and exit signs. We all will suffer outlier events and it’s how we deal with them that determines are long-term success.

I trend follow because I am not a great financial statement reader (it’s a language and an art – who has the time….) and I believe in momentum and crowds (silly math).

All that said, supply and demand matter. I believe in these economic principles completely.

I pick my trends from very top down thinking about products and social trends, than start thinking about supply and demand. I than apply some technical thinking by looking at prices of the stocks or valuation of a start-up.

Sometimes it works, sometimes it does not.

$AAPL worked. Big. It’s an outlier. I wish I applied NO risk management to my thinking as I would be retired.

$INTU is a recent example that did not (I owe a blog post on this topic).

With the housing and semiconductor bubbles, the industries were doomed because of excess supply based on assumed and trusted demand. Timing the end is more art than science, but managing the risk will decide how much money you make on the way up or way down.

The same thing is happening now in shipping…because of the shrinking world and global ‘boom’ shipping tankers were the new sure thing … until they were not.

Soon I will just think about a product and the ‘cloud’ will deliver it out of thin air (the shipping bottom callers would call me crazy).

Personally, I feel we are close to some serious lows for some stocks and some stocks will luckily be saved at zero. The markets will do what the markets will do.

Be honest about your risk profile, find some mentors on the Stocktwits stream, develop your own style by investing real money right away and no size is too small.

If in doubt, invest in yourself.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus