Investing in Waves
Entry for 2017-04-08


Excerpted from Sandpiper Arbitrage (filed under "The Skeptical Investor")
The ideal trader is a sandpiper, working the beach at Carmel or Sanibel Island.
You've seen them: those nimble wading birds who never actually wade because they're always one step ahead of the water. The sandpiper darts in behind the receding wave and gobbles up whatever small crustaceans the wave has left stranded, then scurries back out onto the beach ahead of the next incoming surge.
It's a form of arbitrage. The sandpiper knows everything that matters about market timing and is not confused by fundamentals. He zigs when he should zig. To be a successful sandpiper or a successful short-term investor, timing the waves is the only talent you need.
When a wave of high interst rates is about to recede, you can invest in bonds and other fixed-rate securities to reap high yields throughout the following trough of low interest rates. When the next wave of high rates is imminent, you can sell the bonds, borrow at low rates, and use the money to sell short on interest-sensitive stocks. What could be easier?