Party over? | Looking for Alpha

If you’ve been reading for a while, you know we’ve been reading John Mauldin’s Weekly Note for over 20 years now. In this week’s note, he has a space dedicated to Morgan Housel. If you don’t know Morgan, you should. He wrote a really excellent book called The psychology of money. Get it for your kids. It’s an easy read full of pure wisdom. Here’s what John took away from a recent speech by Morgan.

Housel: what moves the needleWe like to think that investing is all about data and numbers. These are indeed important, but we are still human. We make decisions intuitively and sometimes emotionally. What goes on in our heads is of crucial importance, and no one describes it better than Morgan Housel. Morgan began by telling the story of two investors: One was a simple working man who spent his entire life with no apparent wealth, essentially living on what might be described as the poverty line. Then she died at 100 and turned out to be a multi-millionaire. The other was a highly educated senior executive who retired in his 40s with a large fortune…which he soon lost in bankruptcy.A good investment basically depends on how you behave. It’s about your relationship with greed and fear, how gullible you are, who you trust, who you seek your information from, your ability to have a long-term mindset, time horizon long-term. That’s what really matters. This is what moves the needle more than anything else.

Energy stocks and gold help the portfolio beat our benchmarks. Will they continue? Energy companies have learned their lessons over the years. In the past, they pumped oil as fast as they could to take advantage of high prices. This would lead to increased investment costs just in time to see prices fall. The old adage says that the cure for high oil prices is high oil prices. They don’t make the same mistake this time. You can see from the chart that we may be at the very beginning of a commodity super cycle. Don’t be fooled by this chart from Bloomberg. All is not good. It could also mean that as commodities rise, stocks fall.

Commodity prices (Bloomberg)

I don’t know if the party is over at the stock market, but it sure has been yo-yoing up and down. We told you months ago that we were in an 18-month trading range and a bear market. Our options research was spot on and helped us navigate through the twists and turns of the market. We’re still in negative gamma, and it works both ways – big up moves and down. So far, our trading range holds. Right now the options market is pointing to strong support at 4050-4000 on the S&P 500. We closed at 4123 on Friday. The next chance for the market to wipe the slate clean and return to positive gamma is May 20.and. We would add risk at the lower end of the range and sell the rips higher. A positive gamma would help calm things down a bit. Patience is the key.

Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.

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