Investing or Trading are interesting activities in that just about everything you do or don’t do can be looked at in concrete terms as some type of “failure”.

If I bought AAPL stock last month, I might have made money… but I was wrong because I didn’t wait to buy as the price went lower before finally perking up 2 weeks ago.

If I sold XOM in May, I may have avoided a 10% drop in the price that quickly followed… but I was wrong because I would not have owned it as the price is above the high set in May.

It’s fascinating… almost every decision in trading is wrong in some way. Unless you manage to make a perfect trade — buy at the absolute bottom and sell at the absolute top — there is something that you didn’t do perfectly. (Even if you picked the bottom and the top perfectly there could be plenty of other errors — did you use enough leverage? Was your risk managed properly?)

You can make arguments for or against bonds as we have in some of the recent posts on Tasgall… but most likely all of our arguments will be wrong in some way (it’s hard to get the hang of being perfect…).

The important point to take away from all this is that none of us is perfect. We can only decide to invest or trade in the way that is perfect for us (I know, it sounds cheesy). How do we figure that out?

I believe it comes down to what your objectives are for investing or trading. I have a low risk tolerance when it comes to broad asset allocations (like putting money in “bonds” without specific individual bond contracts being considered), so I focus on the risk of buying bonds today. The risks are low/medium, but then the potential reward is also low. In fact, I believe the marginal reward above holding cash does not make the act of owning bonds worth the risk.

In contrast, John has different objectives for his investing. His objectives include (if I can guess from his comments) being fully invested at all times, diversification (via index funds), minimal position babysitting, and focusing on a long-term time frame. To him (please chime in if I misrepresent you too much), bonds offer value and enough marginal return to have a positive compounding effect over the long term. Getting an extra 1% over money market rates compounding for 10 years adds up.

Even if our views were identical on the fate of bonds (and our views are pretty darn close) it’s not surprising that we can come up with diametrically opposed choices on whether to invest or not. Our objectives are different, our risk tolerances are different, and our time frames are different.

Obviously, none of us can time the market perfectly. We might use trend changes or profit targets to time our buy and sell decisions instead of trying to catch the absolute top. The same idea applies though, we have to find the right profit target for our objectives. (Or stop loss, or fundamental value, or… whatever.)

So, just like with other things, start with the important question first. What are you trying to accomplish? Then you can ask whether or not an investment is right for your objectives rather than just if it is right.

That’s why I don’t feel bad disagreeing with such smart people. 🙂 We can disagree and both be right. Or we can disagree and both be wrong, after all, no one is perfect!