Mike Damone and the Market Gods
How to lock in gains in a cooperative stock market.
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Happy Thanksgiving to all of you! I hope your turkey was delicious and your favorite team won.
We have a lot to be thankful for this year. Markets have been particularly cooperative since the April bottom.
Back then, the S&P 500 (left chart) briefly traded below 5000, while the Nasdaq Composite (right chart) dipped below 15,000. We've come a long way in a short time.
After a long bull run of this nature, I like to pull some money off the table. This is especially true when we’re given the opportunity to sell into strength.
As of Thanksgiving Day, stocks are on a four-day winning streak, so I’ve used that opportunity to lighten up on names such as Nvidia (NVDA) and Advanced Micro Devices (AMD) , as explained here. I'll be locking in more gains in the near future.
Damone Capital Management
This article stirred up some controversy, so allow me to elaborate.
The way I see it, you can't just buy all the time. If all you do is buy, eventually you'll be 100% invested with no room to add.
It's my belief that AI names are about to take a breather, and capital will rotate elsewhere. At least that’s what the charts are telling me. If that’s the case, I'm going to need some dry powder.
If I’m wrong, and Nvidia and AMD roar higher from here, that’s OK because I didn’t close out my positions entirely. I simply reduced them by half, as explained in the article.
In other words, whatever happens next — up, down, or sideways — is fine by me. It’s the trading equivalent of The Attitude scene from Fast Times at Ridgemont High. Mike Damone was kind of creepy, but in retrospect, he probably would’ve made a pretty good trader.
Respect the Market Gods
In my earliest days on Wall Street, a fellow newbie was strutting about the trading floor, hooting and hollering and letting everyone know just how awesome he was.
My senior trader muttered under his breath, “The Market Gods will not approve of this.”
“What do you mean?” I replied.
“There are humble traders, and traders who are about to be humbled.”
He was right. Our colleague wasn’t just humbled, he was sacked a few months later — for poor performance. I guess the Market Gods really didn't approve after all.
Mark Douglas Said It Best
In Mark Douglas’ Five Fundamental Truths of Trading, the first two truths are the most important.
(1) Anything can happen in the market
(2) You don't need to know what will happen next to make money
I know that I don’t always know what will happen next, and that’s OK.
Lock In Gains
When you lock in gains on a successful trade, think of it as a sacrifice to the Market Gods.
Stay humble, and know that you don’t have all the answers. You’ll never have all the answers.
Know that you don’t need to have all the answers.
In the second paragraph of this article, I noted that “markets have been cooperative.” When markets are cooperative, as they’ve been over the past half-year, it’s easy to believe that you alone are the reason for your success.
In reality, it could simply be that the Market Gods have smiled upon you. Lock in gains when appropriate, manage risk, and make an occasional sacrifice to the Market Gods.
At the time of publication, Ponsi was long NVDA and AMD.
