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Dickson Watts on Speculation: Timeless

  
  Education
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MUST READ

His list of ‘Essential Qualities of the Speculator’ and ‘Laws Absolute” show the timeless value of his insight:

1. Self-Reliance. A man must think for himself,must follow his own convictions. George MacDonald says: “A man cannot have another man’s ideas any more than he can another
man’s soul or another man’s body.” Self-trust is the foundation of successful effort.
 

2. Judgment. That equipoise, that nice adjustment of the faculties one to the other,which is called good judgment, is an essential to the speculator.
 
3. Courage. That is, confidence to act on the decisions of the mind. In speculation there is value in Mirabeau’s dictum: “Be bold, still be bold; always be bold.”
 
4. Prudence. The power of measuring the danger, together with a certain alertness and watchfulness, is very important. There should be a balance of these two, Prudence and Courage;Prudence in contemplation, Courage in execution.
Lord Bacon says: “In meditation all dangers should be seen; in execution one, unless very formidable.”
Connected with these qualities,properly an outgrowth of them, is a third, viz:promptness. The mind convinced, the act should follow. In the words of Macbeth; “Henceforth the
very firstlings of my heart shall be the firstlings of my hand.” Think, act, promptly.
 
5. Pliability. The ability to change an opinion,the power of revision. “He who observes,”says Emerson, “and observes again, is always formidable.”
The qualifications named are necessary to the makeup of a speculator, but they must be in well-balanced combination. A deficiency or an overplus of one quality will destroy the effectiveness of all. The possession of such faculties, in a proper adjustment is, of course, uncommon. In speculation, as in life, few succeed,many fail. (more…)

Traders Make Decisions based on Probabilities

  
  Education
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Most traders take price swings personally. They feel very proud when they make money and love to talk about their profits. When a trade goes against them they feel like punished children and try to keep their losses secret. You can read traders’ emotions on their faces.

Many traders believe that the aim of a market analyst is to forecast future prices. The amateurs in most fields ask for forecasts, while professionals simply manage information and make decisions based on probabilities. Take medicine, for example. A patient is brought to an emergency room with a knife sticking out of his chest – and the anxious family members have only two questions: “Will he survive?” and “when can he go home?” They ask the doctor for a forecast.

But the doctor is not forecasting – he is taking care of problems as they emerge. His first job is to prevent the patient from dying from shock, and so he gives him pain-killers and starts an intravenous drip to replace lost blood. Then he removes the knife and sutures damaged organs. After that, he has to watch against infection. He monitors the trend of a patient’s health and takes measures to prevent complications. He is managing – not forecasting. When a family begs for a forecast, he may give it to them, but its practical value is low. (more…)

‘If you really want a fiscal problem, look at the UK’

  
Analysis, Economy, Education
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uk crisisInvestors are asking if Britain may soon face its own sovereign debt crisis if the government fails to slash its growing budget deficits quickly enough to escape the contagious fears of financial markets.…

“If you really want a fiscal problem, look at the U.K.,” said Mark Schofield, a fixed-income strategist at Citigroup. “In Europe, the average deficit is about 6 percent of G.D.P. and in the U.K. it’s 12 percent. It is only just beginning.”

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the government and its citizens have been able to continue to borrow at interest rates that do not reflect their true financial situation.

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As for the British government, it has been able to finance a budget deficit of 12.5 percent of G.D.P. — equal to Greece’s — at an interest rate more than two full percentage points lower only because the Bank of England bought the majority of the bonds it issued last year.

David Rosenberg of Gluskin Sheff also referred to the piece in his morning missive, noting:

Britain is probably one of the few countries in the world where political uncertainty, a renewed round of house price deflation and a sinking currency can manage to elicit a bounce in consumer sentiment (the country has a Greek-like 12.5% deficit-to-GDP ratio, which is double the European average and a household debt-to-GDP ratio that, at 170%, makes the U.S. household sector downright frugal at 130%

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