Kill market bulls and bears. Bring on the wolves

Are you a bull or a bear in the stock market? Either way, it seems likely you could end up losing money in the financial markets. Especially if you’re a ‘perma’ bear (adopting a permanently negative view of the markets) or ‘perma’ bull (adopting a perennially positive view of the markets).

Today’s markets probably call for a nimbler beast - one with claws and hooves and capable of accepting a more short-term view.

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Welcome the wolf. This beast, according to a column by Mike Dolan, Reuters’ Investment Strategy Editor for Europe, is more opportunistic and invests tactically by adopting a deliberately counter-intuitive investment strategy depending on the events of the past few months.

As a wolf, you don’t have to wonder where the markets are headed in the long term or even if a current rally/fall is sustainable. You just need to be brave enough to take advantage of excessive market pessimism or optimism.

Dolan gives two examples to prove his point: “Buying Italian 10-year debt with yields over 7 percent at the height of the euro zone panic in December, for example, would have earned you more than 11 percent to date,” he notes. “Buying Wall St stocks in October as talk of double-dip US recession and even depression was all the rage would since have notched up more than 20 percent - weirdly pushing the S&P 500 into technical ‘bull market’ territory.”

Actually, you don’t even need to look that far for proof. Back in December, some reputed foreign brokerages were predicting the Sensex would tumble all the way to 12,000. Well, after shedding 25 percent in 2011, Indian equities soared 11 percent in January alone. An investor who stepped into the markets in wolf mode in December would have made a killing in the space of eight weeks.

Mind you, there has been little change in India’s economic fundamentals, or indeed, Italy’s ability to resolve its debt crisis or the US economy to justify these gains. For the wolf, such changes don’t really matter.

Europe continues to be mired in the sovereign debt crisis mess – and will remain so for a long time to come. The US economy is also struggling to pick itself off the floor amid a troubling unemployment problem.

However, what has changed is the level of liquidity. The current revival in global equity markets and currencies is no doubt being triggered by an influx of liquidity brought on by the European Central Bank’s pledge to provide unlimited cheap money to the troubled banks of the region, and the US Federal Reserve’s promise to keep interest rates at historic lows until late 2014.

That has emboldened investors to go out and hunt for relatively riskier assets to generate higher yields. Of course, don’t expect this momentum to last forever. Wolves don’t mind - they recognise there is money to be made now, not five years down the line. Their bets are much more short term.

If that sound terribly fickle, get used to it. Because, as Dolan notes, that’s the kind of environment we might have to live with as we “dodge the intense and often unpredictable headwinds of deleveraging and western ageing while catching periodic updrafts from monetary authorities.”

Slowly but surely, the idea that you need to hold on to stocks for the very long term is losing its charm by the day. In today’s world, time no longer seems to be an investor’s best friend.

Even India’s most famous bull (optimistic investor) Rakesh Jhunjhunwala, often referred to as the country’s Warren Buffett, recently said that “ every stock in life doesn't have to be bought for 40 years. ” In his refined version of value investing, investors could also buy stocks for just 12-18 months before selling them at a handsome rate.

Indeed, newer-age value investing could mean buying and selling stocks for even shorter periods than that.

In the times we live in, it’s probably best not to think too much about the long term. As Dolan says, it’s probably a good idea not to be a ‘perma’ anything. Move over bulls and bears, the wolves are here.