Dow Jones 100,000 by 2012 or maybe 1,000 I’m not sure

I finally have it! I have in my hands a copy of Dow, 30,000 by 2008 — why it’s different this time! I borrowed the book from a group of colleagues who purchased it to have a good laugh. I won’t name its prescient author probably now hidden in some cavern somewhere in Afghanistan and who seems to have some (extra) troubles since his funds went out of business, one can wonder why. To me, this guy is purely a marketing genious so many times his book, definitely a best seller, has been mentioned in professional traders chat rooms the past year and I’m pretty sure that he sold more copies than if he had published 10 years ago a book called Dow at 6547.05 in March 2009. I haven’t had a chance to read the book yet but according to the cover page, it reveals the 22 myths of the markets. maybe the guy has discovered 22 TRUTHS of the market. It’s worth investigating!

Regarding myths of the market, I will take the opportunity here to discuss about 2 common investment rules and Wall Street adages I consider being fallacies.

The first is you can’t go broke banking a profit. I would edit the old adage you CAN go broke banking many small profits and taking one huge loss: I saw it and heard it happened. guys profitable for years that went broke in a couple of weeks. That’s the very opposite of my main trading rule let the profits run and cut the losses short, I will tell it again and again.

Following a previous post here, the second fallacy is about diversification. the conventional wisdom states that in order to limit the risks, you need to invest in assets in different classes (bond, equity, gold, cash etc). the idea is, to quote again a popular adage, not to put all your eggs in the same basket. The problem with diversification is it works in standard market conditions to limit. your profits but in crisis times, when systemic shocks occur (and they occur. ), all the assets classes become highly correlated. everything slumps at the same time. In other words. by diversifying your investments you get all the downside and limit the upside. Putting your eggs in different basket is useless if you fall with all of your baskets while if you have only one basket, you will probably be more careful not to fall.

In order to illustrate those two points, I will take the example of George Soros (more convincing that the one of Sauros no?). According to his own words, his investment success lied in homeruns and beating an hasty retreat when proven wrong. Now as described by Stan Druckenmiller (once the Chief Investment Officer of Sorus Quatum Funds) as quoted in the New Market Wizards. Soros has taught me that when you have tremendous conviction on trade, you hve to go for the jugular. It takes courage to be a pig. It takes courage to ride a profit with huge leverage. As far as Soros is concerned, when you’re right on something, you can’t own enough Mmmh, not really diversified.

I will leave you here, Fellow Traders, as I need to focus on writing under two different names two books, one called Dow 100,000 by 2012 and the other Dow 1,000 by 2012, if there’s some volatility by 2012, I will make bestsellers with BOTH of them, actually I’m long straddle.