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On Trading Psychology

From “Reminiscences of a Stock Operator” by Edwin Lefevre, the 1923 classic pseudo-autobiography of legendary trader Jesse Livermore:

… I didn’t always win. My plan of trading was sound enough and won oftener than it lost. If I had stuck to it I’d have been right perhaps as often as seven out of ten times. In fact, I always made money when I was sure I was right before I began. What beat me was not having brains enough to stick to my own game — that is, to play the market only when I was satisfied that precedents favored my play. There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. No man can always have adequate reasons for buying or selling stocks daily — or sufficient knowledge to make his play an intelligent play.

Sometimes the best play is to not play at all. When playing the market, you have to let the opportunities come to you, and take advantage of them when the odds are in your favor. If you don’t, you’ll get very frustrated — and you’ll lose money.

Control your emotions

Allowing your confidence to be shaken can turn a simple losing streak into a terrible case of going bad. Keep your emotions in check. When you lose a pot or make a poor investment decision, get up, walk around the chair or take some deep breaths. Don’t lose your poise. If a trade, or if poker hand does not work out, walk away from the position/hand. Be confident enough about your ability to win afterwards.

Cyber Assets, Digital Currencies, and Money

It does seem that we are in an era where language has been debased.  Friends on Facebook are not friends in the way the word traditionally meant.  Grande at Starbucks does not mean large any more.  It is their second-smallest serving.
In 2013 and 2014, the desire for an alternatives to fiat, central bank controlled currencies were called Alt-Coins.  Now, as interest has grown, they are often referred to as cryptocurrencies.  However, crypto and currencies are names that do not have their traditional meaning.  Crypto refers to secret allegiance to a political creed.  This is an unnecessary obfuscation and gives an aura of a cult.  Currencies refer to money, and yet rarely are the cryptocurrencies used to purchase goods or services or retire financial obligations.
Economists mean something specific about money.  It is a means of exchange.  It is a store of value.  It is a unit of account.   Cryptocurrencies do not provide any of these functions.  This could, of course, change in the future, but there is a contradiction at the core.  If cryptocurrencies are to be a preferred alternative to central bank money, then it makes sense that they are hoarded.  However, the more they are hoarded, the less they are used as a means of exchange and do not reach that critical networking mass.
Some places do accept Bitcoin, the most popular and largest among the cryptocurrencies.  But this seems to be more a novelty and marketing ploy.  A company that accepts the cryptocurrencies faces exchange rate risk as it was just paid in a “foreign currency.”  This may seem acceptable provided the crypto-currency is appreciating, but corporate treasury offices, for the most part, do not seek to be profit-centers of the business.
Given what appears to be the historical link between money and taxes, we thought that a test for the viability of this cryptocurrencies is if a sovereign accepts them for payment.  A small town in Switzerland (Chiasso), near the Italian border, says it will accept Bitcoin for taxes but caps it at CHF250, which also makes it a bit of a novelty. It also begs the question what will the town do with the Bitcoins, as there is not much that town can buy with them.
In the US, before the Federal Reserve, the banks in different states would issue bills that would trade at discounts in other locales.  It was as if there were as many different monies as states.  This seemed to be hinder interstate commerce and the development of a national economy.
Imagine that each state has its own currency.  It would be terribly inefficient.  This was the case in Europe before the advent of the euro.   A shopkeeper now willing to accept cryptocurrencies for payment might need a  huge price matrix as there are over 100 presently  Given the high fixed costs and practical considerations, perhaps there is a tendency for a natural monopoly of currency issuers.
In the polemic zeal and in the face of surging prices, the inefficiencies and limits on the ability to scale have been brushed over.  Consider, for example, that now there may be 300k Bitcoin transactions a day.  VisaNet, just to pick one of the main credit card companies, can process  56k transactions messages a second.   For the Bitcoin,  do not need to simply double or triple is speed to compete with an alternative.  Visa.net  can handle more than 150 mln transactions in a single day, and at a fraction of the cost.
The price to pay for a decentralized payment system is high.  Consider that the mining (solving extremely difficult mathematical problems and the confirmation of each transaction requires a great deal of electricity, which is why the miners (who are also verification services) are increasingly located in areas that have cheap electricity.  Estimatessuggest that each Bitcoin transaction uses roughly the same amount of electricity as a US household may use in a week.   The Bitcoin runs counter to conservation and concerns about the environment.
The cost of producing a Bitcoin is a function of the price of computing power needed for the mining and the validation process.   More computing power is needed to solve the mathematical challenges and this, in turn, requires more electricity.   One estimate suggests that the Bitcoin ecosystem was using around the same amount of electricity as 2.26 mln homes.    Bitcoin currently accounts for around half of the daily turnover of cryptocurrencies.
Many argue that cryptocurrencies are anonymous, but this is not as true as it is supposed.  Reports suggest that there are currently people in jail who used Bitcoins to procure contraband.   The US tax authorities are also working with a company called Chainanalysis, which monitors the cryptocurrencies for high frequency and large trading.   The state has at least two legitimate interests.  Illegal activity, including money laundering and financing for terrorism and the avoidance of taxes.  Despite the talk among many participants about how much money they have made, only 802 people reportedly paid taxes on their Bitcoin profits in 2015, according to press reports.
Some proponents assert that the cryptocurrencies are unseizable, immutable, inflation-resistant, non-correlated to other assets and are a store of value.  Yet these claims have not been proven.   They simply have not been around long enough to know if they are indeed immutable, inflation resistant and non-correlated to other assets.  The price of many cryptocurrencies appears too volatile to be a store of value yet.  They are experiencing amazing price appreciation for sure, but that is not evidence of a store of value.

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The Ten Harsh Financial Commandments

I) You will not buy low or sell high.

II) You will cut your winners and let your losers run.

III)  You will wish you owned more of what’s going up and less of what’s going down.

IV) You will be fearful when others are fearful.

V) You will fight the trend.

VI) You will not buy when there is blood in the streets.

VII) You will spend too much time worrying about low probability outcomes.

VII) You will invest for the long-term, or until we get a ten percent correction, whichever comes first.

IX) You will go broke taking small profits.

X) You will not just sit there, you’ll do something.

Mt Everest Glaciers Shrink 14% In 50 Yrs: Study

MT-EVERESTResearchers have found that glaciers on Mt. Everest in the Himalayas, the world’s highest peak, have shrunk by about 14 percent in the past 50 years in what they suspect is the effect of climate change.

The pace at which the glaciers have been decreasing in recent years is nearly six times that of the average between 1958 and 1975, according to recent research led by Sudeep Thakuri of Italy’s University of Milan.

Members of the research team are warning that the decline in glaciers and snow will likely pose a major impact on Asia’s water resources and agriculture.

“The Himalayan glaciers and ice caps are considered a water tower for Asia since they store and supply water downstream during the dry season,” Thakuri said in a press release. (more…)