A case for gradualism

Blogger Roger Nusbaum writes about gradualism in his June 9, 2009 entry (link):

>>
...if they [money managers or market timers] responded to the last meltdown by selling at precisely the wrong time why would they somehow handle the next meltdown differently?
...

The easy way to avoid this dilemma is to just avoid big bets. Selling everything is an enormous bet and is difficult to get right. ...

This dilemma is a big reason of why my approach is so gradualist. If you are going to participate in the stock market then you need to realize that occasionally the market will go down and thinking you can avoid any drawdown is unrealistic. All of my method around the 200 DMA is focused on going down less when the market looks like it will go down a lot. In that context selling everything is simply the wrong trade.
>>

For long termers, I am a big fan of gradualism. Strategies such as dollar-cost averaging, asset allocation, making small moves instead of big bold moves, are all part and parcel of that. Long term timing mechanisms such as the 200 day moving average, Dow Theory, Value Line appreciation projections are some tools that some use for long term timing.

Many folks, especially those relatively new to the market prefer big bold bets, or at least reading about them. In my experience, not many of those bold folks stick around, if they remain bold. Some of them are only bold on paper and don't put up any real money. Some of them are hindsight traders that only post after they have winners and don't write about their many losers.

As for the recent stock market action, today is about as dull as dull can be. It looks to me like "the calm before the calm." The market cliche "never short a dull market," comes to mind. The decline in volatility means slim pickings for those like me that like to sell options. Best to wait until a fatter pitch comes down the pike instead of swinging and missing at what is being thrown at the moment. There is almost always another opportunity, a better opportunity, usually soon.

Monday's late rally again slammed the door in the faces of those looking for a sharp pullback. That doesn't mean it can't or won't happen, but there has been a lot of money flowing in on every small dip.

Long SPY