You Don’t Have to Have an Opinion

I don’t have an opinion about stocks here at all. None. Therefore, I’m not going to trade them.

I’m sure you’ve run across these people who always have an opinion about everything. They’re always long or short something. The reality is that you cannot have 100% conviction on every trade—some trades will be high conviction, and some trades will be low conviction, and then there are the zero-conviction trades that you make when you are bored. I don’t recommend doing that.

I generally only put on the high-conviction trades because there is nothing worse than losing money on something with weak conviction. You lose $40,000 on some stock you didn’t even really care about—there’s nothing worse than that. You feel like an idiot, and I like to minimize future idiot regret. If I’m in it, I’m in it to win it; and if I’m not in it, I’m out of it, and I don’t care.

I was bearish on stocks, stocks cratered. I was bullish on stocks, stocks ripped, and now I don’t have a view. I don’t have a strong view on bonds either. I don’t have a strong view on much of anything. Which means I’m not trading. I have some long-term, fundamental bets that I am waiting to play out, but aside from that, I’m sitting on my hands.

I’m sure you know who Stephen A. Smith is—the loudmouth guy on ESPN who has an opinion on everything. Can you imagine if someone asked him about a player on a team, and he said, “I don’t really have an opinion on that.” What? He’s paid to have crappy opinions about everything. He doesn’t even care if they’re right. He doesn’t even care if they’re the correct take. He’s just supposed to have a loud, uninformed opinion about everything. That is his job.

Don’t be the Stephen A. Smith of trading.

Other Stuff

Even outside the trading world, I don’t have opinions on a lot of stuff, especially politics. I have strong opinions about taxes—very strong opinions about taxes—and strong opinions about monetary policy and regulation, but beyond that, I don’t really care about a lot of this stuff.

I’m not a social conservative, so I didn’t get sucked into the outrage machine about all the gender politics stuff. This is my rule about having opinions about politics: If it is something that affects me personally, then I have an opinion about it. Otherwise, I don’t. 

For example, I don’t have any kids. I hear some stuff about education policy, and I suppose I have opinions about it, but I don’t have any kids, so at the end of the day, it doesn’t affect me, and I don’t really care. That’s 26 years of being a trader for you. Self-interested to the core… but also emotionally healthy.

But sure, when it comes to stuff that affects me, I care a lot. When Trump says that he’s thinking about creating another top tax bracket at a higher marginal rate, that affects me, and I get upset. And then I think about what I can do, if I have any influence at all. And I do. I can go write an op-ed and get it published somewhere. Yes, it’s nice to see my name on the internet, but a well-crafted op-ed really can get the attention of policymakers. 

I will tell you that some of the smartest people in politics write for the National Review. Some really smart folks. But everything is paywalled, so nobody gets to read it. Side note: I don’t see the point of putting opinions on the internet if you’re going to paywall them—that kind of defeats the purpose of getting your message out there. Otherwise, it turns into a giant echo chamber. I have been an op-ed columnist, on and off, for about eight years. What I’ve learned is that there are some things that I don’t have an opinion on. I don’t have to care about everything!

Horn High Yo

It’s kind of like the craps table. There are all kinds of bets you can put on. The pass line, the come bet, the hardways, the prop bets, the feature bets—you can throw money all over the table, and ultimately what happens is that all these bets individually have negative expectation, so you’re just making your odds worse and worse. 

I’ve seen people lose tens of thousands of dollars doing this. I’ve also seen people lose a lot more than that by building a portfolio full of crap that they have no conviction on, and then it all goes to hell. 

Ever take a look at Stan Druckenmiller’s portfolio? The last time I checked, he had about 10 stocks, and two stocks made up 60% of the portfolio. That is how you are supposed to do it, believe it or not. Of course, Stan believes that diversification is the enemy, and it really is, if you know something. If you don’t know anything, then just buy an index fund. 

But I am operating under the assumption that most of my readers are smarter than the average bear, and that they do have a little bit of edge. If you only have conviction on one stock, then only buy one stock. You don’t need to buy a bunch of crapola just to be diversified. You don’t need to have 30 stocks in your portfolio. If you have 30 stocks in your portfolio, with a 3.33% weight to each of them, and your high-conviction trade makes 100%, you aren’t going to make very much money, are you?

You can’t have an opinion about everything. Occasionally, I get asked on podcasts about this or that stock. I don’t feel the need to have an opinion on it. I’ll say, “Sorry, I don’t have an opinion on that.” Or maybe I don’t have an opinion on it today, but I will have an opinion on it tomorrow.

You can’t lose money if you are flat!

If there is nothing going on in the markets, and you don’t have an opinion on anything, just get out of the market! Go to cash. To use a poker analogy, you want to be tight and aggressive. You don’t want to be splashing the pot with chips for no good reason. You must trade with a purpose.

Jared Dillian, MFA

P.S. Just a reminder that you can preorder the e-book for RULE 62 here. The release date is June 24. If you want a physical copy, you can wait until then! I’ve never written a bad book, and this is no exception.