Archives of “January 5, 2019” day

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10 Lessons from Michael Batnick’s Book ‘Big Mistakes’

  
Analysis, Education

Image result for big mistakes michael batnickIn his first book, Michael Batnick outlines the big investing and trading mistakes of some of the most successful investors and brightest minds that are known to humankind. Most mistakes revolve around the same themes:
– being overleveraged and building too big positions in assets that were illiquid or suddenly became illiquid;
– venturing outside of expert zone when having to manage a much bigger amount of capital;
– overconfidence and hubris;
– normal mistakes that cannot really be prevented; they are part of the investing process;
– fear of missing out.

I enjoyed reading Michael’s book . It is not a how-to book. It is an interesting dive into market history and psychology. Here are some of the more interesting insights I found:

1. Leverage made Livermore his fortune, leverage destroyed him. He knew everything one can possibly know about market psychology and price action but it seems he never learned how to control risk – it was a constant all or nothing betting for him. No wonder he went broke 4 times.

2. Ben Graham understood that no approach works all the time. There are time and place for everything. Markets evolve and some concepts stop working. A margin of safety doesn’t matter during periods of forced liquidation, especially when you are leveraged to the hill.

3. “A high IQ guarantees you nothing! This is one of the hardest things for newer investors to come to grips with, that markets don’t compensate you just for being smart.” and “Intelligence in investing is not absolute; it’s relative. In other words, it doesn’t just matter how smart you are, it matters how smart your competition is.”

4. “Putting too much money into something you don’t fully understand is a good way to lose a lot of money. But what’s more damaging than losing money is the psychological scar tissue that remains after the money vanishes.”

5. “Once something belongs to us, objective thinking flies out the window.” (more…)

4 Trading Mistakes

  
  Education
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1.  Do the Math
 

Sit down and go over your expected Risk to Reward Ratio for each trade.  If you have already been trading for a period of time sit down and analyse how much you are making each trade and your winning %.  These two numbers will help you formulate a solid profit goal.  No trading strategy works 100% of the time so you need to work out how much you lose per losing trade vs. how much you make per winning trade and then figure in your percentages.  From there you should have a realistic idea of how much you can expect to make in through your trading. 

2.  Don’t Expect Instant Returns
 

Trading is a business and like any other business it requires not only capital investment but time investment as well.  It takes time to find your rhythm and develop your trading skills.  Try not to be to hard on yourself during the learning phase and remember to focus on the positive aspects of your trading.  The vast majority of traders lose money and this number is even higher with traders who are just starting out.  Factor this in when you are setting your goals.

3.  Skill vs. Profits
 

Try to come up with goals that are not directly tied to your P&L statements.  For example, set a goal of following your rules for every trade for an entire trading day.  Once that is completed shoot for an entire week, then a month, and pretty soon you will be doing following your rules without even realising it.   Train yourself to develop your trading skills and reward yourself when you reach those goals. 

4.  It Takes Money
 

It takes money to make money.  Small accounts are fantastic for testing out whether or not trading is for you but when you get serious and want to go full time make sure you have enough capital to support your business.  Solid traders should expect to make 8% in the market over the course of a month.  That equates to 96% over a given trading year.  Make sure this figure allows you to have the lifestyle that you are expecting. 

Everyone is afraid of each other

  
  Education
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  1 Comments

The warrior of the light knows: everyone is afraid of each other.

This fear can generally be seen in two forms: through aggression, or through submission. They are two sides of the same problem.

That is why, upon being confronted by a someone who inspires terror, the warrior recalls: the other man is insecure, stressed, or scared. He has overcome similar obstacles, and has lived the same problems.

But he knows how to deal with the situation better.
Why? Because he uses fear as a motor, not as a brake.

Thus the warrior learns from his opponent, and keep cool, waiting for the storm to pass

Bill Gross Channels Michael Jackson In Latest Monthly Letter, Asks "What Makes A Great Investor?"

  
Analysis, Education
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From Bill Gross of PIMCO

I’m starting with the man in the mirror
I’m asking him to change his ways
And no message could have been any clearer
If you wanna make the world a better place
Take a look at yourself, and then make a…
Chaaaaaaaange ….. Must Read this………….!
— Michael Jackson
 
A Man in the Mirror
Am I a great investor? No, not yet. To paraphrase Ernest Hemingway’s “Jake” in The Sun Also Rises, “wouldn’t it be pretty to think so?” But the thinking so and the reality are often miles apart. When looking in the mirror, the average human sees a six-plus or a seven reflection on a scale of one to ten. The big nose or weak chin is masked by brighter eyes or near picture perfect teeth. And when the public is consulted, the vocal compliments as opposed to the near silent/ whispered critiques are taken as a supermajority vote for good looks. So it is with investing, or any career that is exposed to the public eye. The brickbats come via the blogs and ambitious competitors, but the roses dominate one’s mental and even physical scrapbook. In addition to hope, it is how we survive day-to-day. We look at the man or woman in the mirror and see an image that is as distorted from reality as the one in a circus fun zone. (more…)
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