Archives of “February 2019” month

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Trader Types and Personalities

  
  Education
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  • Scalpers
    • High energy, short attention spans.
    • Usually former athletes, tennis and hockey players make the best traders.
    • Able to play both offense and defense simultaneously, and able to think a few steps ahead of the game.
  • Spreaders / Option Traders
    • Quick and flexible thinkers, able to look at numbers and figure risk and value instantaneously.
    • Not in the market to take risk, methodically search for mathematical anomalies and lock in profits immediately.
  • Position Traders
    • Energy level almost nonexistent.
    • Put on passive positions, ride the winners, cut losers.
    • As a position trader, your brains are working all the time, and you keep looking for an informational edge that might drive the market one way or the other.

Top 17 Quotes from Buffett's Letter

  
  Education
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  1. “I needed no unusual knowledge or intelligence to conclude that the investment had no downside and potentially had substantial upside.”
  2. “You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well.”
  3. “Keep things simple and don’t swing for the fences.”
  4. “When promised quick profits, respond with a quick ‘no.'”
  5. “If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility.” 
  6. “Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard.”
  7. “Forming macro opinions or listening to the macro or market predictions of others is a waste of time.” 
  8. “It should be an enormous advantage for investors in stocks to have those wildly fluctuating valuations placed on their holdings — and for some investors, it is.”
  9. “Owners of stocks…too often let the capricious and irrational behavior of their fellow owners cause them to behave irrationally as well.” 
  10. “In the 54 years (Charlie Munger and I) have worked together, we have never forgone an attractive purchase because of the macro or political environment, or the views of other people. In fact, these subjects never come up when we make decisions.” (more…)

Booking Losses Before They Occur

  
  Education
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There is a meaningful difference between trading to win and trading to not lose. The average person feels more psychological pain over a loss than they feel pleasure over a gain–particularly once they have already “booked” that gain mentally.

When we enter a trade, we expect to be paid out. Mentally, we book a potential profit. When a loss materializes, it is the unexpected event–and we respond more strongly to the unexpected than to the familiar.

What is the solution to this dilemma? The answer, surprisingly, is to book losses before they occur.

It’s human nature to not want to think about such unpleasant things as losses. But by knowing our maximum possible loss in advance and by mentally rehearsing what we’ll do on those occasions when the loss occurs, we normalize the losing process. That divests it of its emotional grip.

We can never eliminate loss from life or trading; nor can we repeal the basic uncertainties of markets. What we *can* do is develop an edge in the marketplace and, over the course of many trades, let that edge accumulate in our favor.

John C. Maxwell,Sometimes You Win—Sometimes You Learn (Book Review )

  
  Education
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We’ve all read innumerable times that we learn more from failure than from success. Well, that’s not quite accurate. The sentence should probably read: “Failure provides a better opportunity for learning than does success.” Not all people—in fact, probably few people, take advantage of the opportunity that failure offers.

John C. Maxwell, a prolific author of self-help books, wants to increase the number of learners. Sometimes You Win—Sometimes You Learn: Life’s Greatest Lessons Are Gained from Our Losses (Center Street/Hachette, October 2013) explains how to turn failure into learning. John Wooden wrote the foreword to the book, based on its outline, a few months before he died.
Losses are tough, there’s no getting around this fact. They cause us to become emotionally stuck and mentally defeated, they create a gap between knowing and doing, they never leave us the same. They hurt, but when we don’t learn from them they really hurt.
Maxwell approaches learning from multiple perspectives: the foundation of learning, the focus of learning, the motivation of learning, the pathway of learning, the catalyst of learning, the price of learning, and the value of learning. His final chapter is entitled “Winning Isn’t Everything, But Learning Is.” He incorporates anecdotes, insights from others, and apposite quotations such as Bill Gates’s famous line: “Success is a lousy teacher. It makes smart people think they can’t lose.” (more…)

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