Whenever I have misfired on predicting market direction, I review the data I used in my analysis in formulating my erroneous investment thesis.  I do this for two reasons.  The first allows me to make a more accurate prognostication the next time we encounter a similar environment while the second yields clues on what will precipitate the inevitable turn for equities.  When managing the Beacon Worldwide Opportunities hedge fund last August, I got caught long as the S&P 500 sold off 8% because I disregarded a reliable oversold indicator that I track as well as ignored weak economic data that I argued was dirty, thanks to a variety of outside influences such as the expiration of the first time homebuyer tax credit, and did not reflect the true state of the recovery as global numbers were accelerating aggressively. 

After reevaluating my research, I concluded that since the sentiment statistic had trended to more neutral territory and valuations on stocks had ventured to a point cheap enough to entice institutional buyers, I felt comfortable adding to my long positions which allowed the fund to finish that quarter up a solid 7% Continue reading »