Getty Images

In the markets, losing trades are unavoidable even for the most accomplished investors. As Carl Ichan put it recently, "In my business, if losing money shakes you up, you won't last until spring, let alone become a raider in winter.'

Because nobody is right all the time, the technique and skill comes in being able to minimize losses so that even a poorly timed investment doesn't wreck one's entire portfolio. That's the strategy you won't hear on a 30-second stock-picking segment on cable TV.

So as U.S. government bonds capped off another winning week (the two-year Treasury's 10-week climb has been the longest in 25 years), a steady and painful dribble of losses has compelled me to lighten up on the short bond position I wrote about last February.

And while it's easy to blame Ben Bernanke, the Chinese or innumerable other factors, one quickly learns to understand how, while opinions are often wrong, markets are not. At least for now, the market simply doesn't agree with my bearish outlook on bonds. Because the profit (or lack thereof) is the only barometer that matters, the active investor must respond by acknowledging reality, not evading or denying it.

That means taking some losses and decreasing exposure as the market goes against me. It's a humbling but self-preserving response: Respect the tape. If you can't admit being wrong now and then, you will not succeed in the markets, where, just like a skyscraper, one must be able to bend so as not to break. Plenty of smart, rational and well-researched investors lost fortunes betting against internet stocks in the late 1999s despite their bubble valuations because they fought the tape even as the stocks continued to rise.

As much as possible, I ignore news, politics and emotion and put my actions in the market's hands: if interest rates continue to fall, equating with a rise in the iShares Barclays 20+ Year Treasury Bond ETF (TLT) to $100 I'll continue to cut my position. Should rates begin reapproach the 2011 highs, which would push TLT back near $90, I'd consider building it back up again.

As investors, we operate on quarterly numbers and year-to-date results. But markets have all the time in the world, and it's often the case that we're not wrong just early. That could easily be the case for bonds, where a sharply lower dollar and rising commodity prices haven't triggered broad inflationary pressures yet.

The last major US inflation might have peaked in the late 1970s, but the trend had already been well in place for years, including cover stories on inflation in Time and Life magazines going back to the early 1970s when the prime rate was at 7%. By 1980, it was at 20%. When it comes to a meaningful 2000s inflation, we could still be at those same early days.

Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC. At the time of writing, Hoenig's fund held positions in many of the securities mentioned.