Let's talk about investing, in human terms and how to consistently make money by being a simpleton.
Everyone loves to complicate things, which is detrimental to your financial health, especially when it comes to investing.
Personally, I think the quest for meaning has something to do with human nature (at least for humans with a modicum of intelligence) and our need to find the meaning in all things.
"What does this mean?"
"What does that mean?"
"What is the meaning of it?"
We just have to know, don't we? Why? Because we think if we understand the meaning of things, then we know. Knowing may be an absolute, but not when it comes to meaning.
Meaning, in the sense we're talking about, isn't knowledge. It's more of an interpretive thing.
And that's the problem with trying to find meaning in everything that moves markets.
Take for example how you interpret the meaning of actions taken by the Federal Reserve, by banks, by Congress and by other investors.
Somehow, we think that if we know the meaning of others' actions we can dig down into some deep base of knowledge and make "more better" informed investment decisions.
Well, here's the rub: While the search for meaning may be worthwhile as an endeavor, especially if you're making long-term, locked-in investment decisions (which is mostly inadvisable , unless you're buying a house), it's more a waste of time and money than you realize.
If you want to make money in the markets, you have to make decisions. There are only two decisions that matter, only two decisions that you have to make, ever.
In the back of your mind, without even consciously trying to figure it all out, you probably get it. Most people actually get lost subsequently trying to get "meaning" consciously – looking for the meaning.
Like I said, making money is about two decisions only. They are: Buy it? Or Sell it? That's it.
Take the whole fiscal cliff trap – and how you're supposed to invest under present circumstances…
We all knew the fiscal cliff was coming. And we all know that they didn't fix anything. They've just kicked the can down the road again. So what does that mean for the markets?
Buy or sell?
It doesn't matter. Or, at least it shouldn't matter. Why? Because nothing has happened so there's nothing to do. If you're invested, don't complicate things. Don't look for any meaning in any of this.
Here's how I untangled all the meaning I tried to interpret from all of the things that were happening this past summer.
First, I stopped trying to look for meaning where there was none.
Second, I looked for what I knew and hung my hat on that.
The Fed was doing more quantitative easing, keeping interest rates low, and stuffing the banks with money. There's no looking for meaning in that. You could look at what that means for the state of the economy, or the state of banks, but that's too much looking for meaning.
The Fed easing means markets are probably going to go higher, or at least the Fed is going to provide a backstop. That means buy, not sell.
So, this summer, in both my investment newsletters, we bought high-yielding, high-paying dividend stocks for income that we weren't going to get anywhere else. And we took several positions that made sense because they diversified our portfolios.
We didn't sell anything going into the year-end with all the fiscal cliff talk about what it would mean. We did buy some portfolio insurance, which was simply a buy decision.
And here we are today. We rode out the fiscal cliff because we didn't know what any of it meant. So it all got reduced to "do we buy or sell?"
That's what we did. We bought some downside protection and had stops in place on all our positions in case the meaning of going over the fiscal cliff was: SELL.
That's it, it is just that simple.
I've made money in the markets every year for some 30 years – in spite of the fact that I look at what things mean (after all, I'm only human). For me and for you, making money has to do with only two decisions. Personally, I don't put a lot of meaning on either of them.
If I buy and I'm wrong, the only meaning that has is that I made a bad decision. I fix that by making another decision. It's not hard.
If you want to make money, make decisions. Stop looking for meaning and make buy and sell decisions based on whether you are making money or not.
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About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.