Choose the Market Battles where you want to participate wisely. Else, you risk losing the entire War.
A powerful Story from History for all our Friends (related to Investment Strategy). Like this email if it has helped you with Perspective.
Note: I am roughly about 2,200 friends away from the 100K Milestone on Youtube. I view Youtube as a marathon, not a sprint, and I will continue producing the highest-quality research on actionable investment strategy on the Platform to help you navigate markets.
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With that said, I sincerely hope you enjoy this email letter, which I believe will help you develop powerful perspectives.
From Boston, MA
Dear Public And Private Investment Community,
We will talk about Investment Strategy in just a moment. This email is once again designed to provide you with perspective, which is one of my primary goals within my public content. In fact, I believe that this is NOT the time to be reading endless summaries of what markets have been doing, but rather to use this time to deepen your perspective so that you can formulate the path from here.
In order to do so, I will connect the most valuable disciplines from liberal arts together: History, Literature, Psychology, and Philosophy. This specific public letter will relate to a critical historical event: the Paraguayan War of 1864 to 1870. I will later connect this with Investment Strategy.
Although the U.S. education system is heavily focused on U.S History, there are many pivotal events that have happened outside of the U.S. such as in Latin America, Europe, and Asia-Pacific that merit our attention - especially when it comes to lessons learned and key takeaways that can provide us powerful perspectives for the future.
And in today’s letter, I am going to be talking about the Paraguayan War of 1864-1870.
The Paraguayan war of 1864-1870 is considered to be the bloodiest war of South American history - ever. Yet, many American students or adults have not even heard of this pivotal event.
Also known as the War of the Triple Alliance, the Paraguayan War was fought between Paraguay and the “Triple Alliance” of Argentina, the then-Empire of Brazil, and Uraguay. At the end of the war, Latin America’s map (see image above) was distinctly re-drawn, and it serves as a stark reminder of the dangers of challenging forces that are more powerful than a country can handle.
The origination of the war came from Paraguay’s intense disputes on its borders with Brazil. Paraguay’s then-Dictator, Francisco Solano López, took his 50,000-army of men (which was among a very strong military in Latin America at the time) and decided to go to war to defend its borders.
Lopez was successful in uniting his nation’s citizens around this territorial cause, and as a result, they fought to the point until capitulation. Unfortunately, the war left Paraguay completely destitute. It’s estimated that its prewar population of approximately 525,000 was reduced to about 221,000 by the end of the war in 1870-1870. And among its population, only about 28,000 were men.
It is estimated that the mortality rate percentage (the percentage of people who died from this war) was roughly 2/3 of their population. An estimated 90% of Paraguay’s men had perished by the end of the war.
Over the past several centuries, the Paraguayan War is widely considered to be one of the world’s deadliest wars where the mortality rate percentage is among the highest of major battles ever fought.
Now let’s talk about how this relates to Investment Strategy.
How the Paraguayan War is a metaphorical representation of what it means to be in a Bear Market
Ever since the pandemic-fueled stimulus of 2020-2021, an army of retail traders have become emboldened by the thinking that the Fed will always be there to save the markets from a deep bear market or an economy that is plunging into recession.
As a result, this line of thinking has in fact turned into the famous phrase: “Buy the Dip.”
From a metaphorical standpoint, WE the retail traders represent Paraguay.
The Fed is synonymous to Brazil from the Paraguayan War. A force to be reckoned with in terms of their capabilities to control monetary policy and QT.
The Global Growth slowdown from China to Europe situation is synonymous to Argentina and Uraguay (countries that backed Brazil) in the Paraguayan War. Also formidable, powerful forces.
Yet, for some reason, it appears that the Retail Investors just continues to fight against these massive forces even when it should be as clear as day what that outcome will be.
We saw this with the very large counter trend S&P 500 rally leading up to Jackson Hole from 3900 to 4300
We saw this with the smaller counter trend S&P 500 rally pre-August Inflation CPI from 3950 to 4100
These two events served as powerful bull traps that have trapped millions of retail investors at higher cost basis levels (that is, if they haven’t sold at a loss).
These are also two events that demonstrate that winning a Battle, does NOT mean that you will win the War (although winning Battles is of course very nice).
From a military standpoint and a resources standpoint, it was virtually IMPOSSIBLE for Paraguay to win against the “Triple Alliance” of Brazil, Argentina, and Uraguay.
But Paraguay tried anyway - only to encounter a tragic ending.
In my public content, and inside our Investment Community, I have continued to go all-out to strongly recommend staying Defensive in this extremely treacherous environment.
You can read my previous emails.
You can read my Tweets.
You can watch my latest Youtube videos (last 3-5) - subscribe if you haven’t yet already.
I have used this period of time as a tremendous opportunity to guide our members to MAXIMUM safety so that they can avoid the serious damage that is being done in certain pockets of the market like Semis, Cyclicals, FAANG, QQQ and other high-growth areas.
I know this may seem like a strange metaphor to you, but as the Creator of an Investment Community that focuses on the stock market, I view myself as Strategist that leads our team to battle (in financial markets) in the context of a constantly ongoing war.
As market participants, we have finite resources: capital, energy, and mental state.
Our resources are NOT infinite, and we must not mistake this important fact. How our resources are deployed is of the most important consideration.
There are certain battles and wars in which we participate where I know the likelihood of survival is low. (AKA Risk/Reward is weak).
On the other hand, there are also certain battles/wars in the market where in special situations, the likelihood of victory is elevated.
Lesson? Choose your battles very carefully - else, you risk losing the entire war.
In a blurb in one of our recent Discord News Feed Posts, I discussed that because AMD/ADBE rallied away from my target ranges that I would NOT be chasing them. And that I will remain patient for future “opps” (slang for Opportunity).
As a result, our Community and I were able to avoid the massive drawdown that has happened to these 2 iconic companies (which will recover in the long-term, by the way - so do not worry all too much)
I know which battles I want to participate in, and when the battle setting is somewhat more favorable. Same way in battle, I’m not going to purchase ammunition and drain resources when I know that we could be outnumbered and cornered.
That is asking for defeat.
After the August CPI data (our analysis is inside our Community if you wish to read further) came out hotter than expected, markets sold off as you all know. This was when markets sold off from S&P 500 4100 to roughly ~4000 if my memory is correct.
Yet despite the large dip, I CONTINUED to tell our Community that that was not yet the time to be brave and commit additional scarce resources into cyclical names that had been slammed.
There will be better moments ahead, I told our friends.
The landscape had given me absolutely no reason to recommend or guide on aggressive long positions in the face of such bearish macro developments.
Using the Paraguayan War of 1864 as a reference, buying heavy risk assets when you learned Inflation CPI was north of 8.3% is analogous to Paraguay going heavy on the offensive against Brazil, Argentina, and Uraguay after these 3 countries UPGRADED their weapons and military strategy.
As you can probably imagine, doing so would be an Army General leading his troops to their doom.
I want everyone to recognize that we are in fact in an intensive battleground between Bulls and Bears. Your timeframe will determine your strategy in terms of when and how to participate.
In the past, I have guided well. In the future, I hope to do the same. All my decisions are based on objective frameworks. If we win, it will because of a process. If we lose, it will also because of a process. I do not use gut feeling to make decisions. And you shouldn’t either.
What I want you to understand about me is that I am dedicated to your success. If you choose me as your leader, I will help you understand which battle to participate in. And which battles to simply not partake.
Folks, I do believe the risk/reward for Bulls is improving as of this report.
As to when and how we decide to enter this battle, I will let our friends inside know.
Be patient. Do not make pre-mature moves. Deploy resources carefully. These are all principles that I am actively sharing with my Community in almost all of my reports.
Do not mistake the next counter-trend rally (a Battle victory for the Bulls) to be a victory in the War against Bears.
Doing so would be like Paraguay winning a few battles against the Triple Alliance (Brazil, Argentina, Uraguay) only to face the final outcome in the end.
If you enjoyed this email, share it with friends and family.
I hope to help you inside our Community.
-Larry
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Your Investment Strategist,
Larry
Important note: My public letters are not financial advice. You must do your own research. They are designed for educational purposes only.