Prospectus for the United States – Would You Invest?

On the other hand, many of us are well-versed at going over a prospectus and Jim Grant of the Interest Rate Observer has put one together for the United States of America as it seeks to raise $16Bn for 30-year Treasury Notes.  According to the prospectus: “The Bonds will mature on April 15, 2040. Interest on the bonds is payable semiannually on April 15 and October 15, beginning October 15, 2010. Before giving effect to the offering of the Bonds and the securities to be issued concurrently,
the United States had approximately $12,500,000,000,000 of indebtedness subject to the statutory debt limitation
.” 

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Why do most traders lose money?

stoplosingmoneyBecause they would rather lose money than admit they’re wrong. What is the ultimate rationalization of a trader in a losing position? “I’ll get out when I’m even.” Why is getting out even so important? Because it protects the ego. I became a winning trader when I was able to say, “To hell with my ego, making money is more important.”

In a Beautiful Passage

In a beautiful passage from Les Miserables,Hugo speculates that Napoleon at Waterloo might be compared to a race horse that was crippled who we all feel great sorrow and compassion for. Contrast this to the envy and loathing that we tend to feel when a rich man loses his fortune especially in the market. One notes a middle response to Tiger Woods missing his third cut in a row in a major tournament. There is empathy because he is a personage of color, but an opposite because he was not a man of faith?

20 Points of Successful Traders

  • They have the resilience to come back from early losses and account blow ups.
  • They focus on what really matters in trading success.
  • They have developed a trading method that fits their own personality.
  • They trade with an edge.
  • The harder they work at trading the luckier they get.
  • They do the homework to develop a methodology through researching ideas.
  • The principles they use in their trading models are simple.
  • They have mental and emotional control is key while winning or losing.
  • They manage the risk to avoid failure and pain.
  • They have the discipline to follow their trading plan.
  • Market wizards have confidence and independence in themselves as traders
  • They are patient with winning trades and impatient with losing trades.
  • Emotions are dangerous masters to the trader; they know how to manage their own emotions.
  • Market wizards evolve as a trader to avoid eventually failing in a method that has lost its edge over time.
  • It is not the news but how the market reacts to that news is what they watch for.
  • The fully understand the right way to position size for their goals of returns and drawdowns based on their risk/reward and winning percentage.
  • Market wizards understand comfortable trades are usually losing trades while the more uncomfortable trades are usually the winners.
  • They are good losers. Cutting losses when proven wrong and even reversing the direction of their trades when the price action dictates it.
  • The best traders are always learning through their own mistakes.
  • Passion for trading was the fuel for their eventual success.

Anti-Fragile Trader

The Anti-Fragile Trader is someone that puts on very small position sizes in low probability trades, but shifts huge amounts of risk to the trader on the other side of the trade. The methodology of the anti-fragile trader is to bet on the eventual blowup of the traders making high risk trades for a small premium.

The favorite tool of the Anti-Fragile Trader is the out-of-the-money option contract. For pennies on the dollar, they can control huge amounts of assets. While they expire worthless the majority of the time, when a random Black Swan event hits the market affecting the option contract, they can return thousands of percent on capital at risk, and makeup for all the past losses.

The creator of the anti-fragile concept, Nassim Nicholas Taleb, traded long option strangles, betting on both directions to capture any huge trend event up or down. A company being purchased and rocketing up, or a disaster and a company stock sent crashing, was hugely profitable for Taleb. He also bought option contracts on futures markets. The key is very tiny bets on these trades versus total account equity. Tiny losses and tremendous wins was what made the system profitable. Continue reading »