Test……..one million……..two million…………three million…
This is how Buffett tested the microphone before his speech at the annual shareholders’ meeting of Berkshire Hathaway. He really enjoys the game of making money. Not to spend it, but to accumulate it. The early investors in BH turned $10,000 into $100 mill for 40 years. (more…)
Years back Tom Willis (a friend of Richard Dennis’) and Bob Jenkins, running a hedge fund, offered answers about “price” during an interview. An excerpt:
Bob Jenkins: “Everything known is reflected in the price. It makes inherent sense. I could never hope to compete with Cargill that has soybean agents scouring the globe knowing everything there is to know about soybeans and funneling the information up to Lake Minnetonka, their trading headquarters. Unless I have a friend at Cargill, I can only get this information one way: I can infer it technically. We have friends who have made millions trading fundamentally, but their problems are (a) they can rarely know as much as the commercials [i.e. Cargill]; and (b) they are limited to trading their [one market] specialty. They don’t know anything about bonds; they don’t know anything about the currencies. I don’t either, but I’ve made a lot of money trading them. Every picture’s worth a thousand words.”
Tom Willis: “They’re just numbers. Corn is a little different than bonds, but not different enough that I’d have to trade them differently-not different enough that I would have to have a different system.”
Bob Jenkins: “Some of these guys I read about have a different system for each [market]. That’s absurd. We’re trading mob psychology. We’re trading numbers. We’re not trading corn, soybeans or S&Ps.”
I hope everyone catches the nuance of Bob Jenkins’ last statement? Some great succinct language about what “it” takes. Taken from an interview 20 years ago…
There are four cardinal principles which should be part of every trading strategy. They are: 1) Trade with the trend, 2) Cut losses short, 3) Let profits run, and 4) Manage risk. You should make sure your strategy includes each of these requirements for success.
Trade with the trend relates to the decision of how to initiate trades. It means you should always trade in the direction of recent price movement.
Mathematical analysis of commodity price data has shown that these price changes are primarily random with a small trend component. This scientific fact is extremely important to those desiring to pursue commodity trading in a rational, scientific manner. It means that any attempt to trade short-term patterns and methods not based on trend are doomed to failure. It also explains why day trading is darned difficult and why almost no day trader is a long-term success.
The shorter the time frame in which you examine price action, the smaller the trend component is. Commodity price action is fractal. That means that as you shorten or lengthen the time frame, price action remains similar in behavior. Thus, five-minute charts have roughly the same appearance as hourly charts, daily charts, weekly charts and monthly charts.
This similarity in chart appearance convinces traders that you can day trade successfully with the same tools you use on longer-term charts. Of course, they try to use much of the arsenal of technical analysis that doesn’t work on long-term charts either. Things like Oscillators, Candlesticks and Fibonacci numbers.
However, even trend-following tools that work in intermediate to long-term time frames won’t work in day trading. This is because the trend component is so very small in short-term data that you must use a highly effective method to overcome the costs of trading.
In longer-term trading, you can let your profits run. You do it by definition or it wouldn’t be long-term trading. In day trading you can only let your profits run to the end of the day. This means your average trade (the average profit of both your winning and losing trades) must necessarily be much smaller than if you could let your profits run for days, weeks or months. However, your costs of trading–slippage, commissions, the bid/asked spread and mistakes–stay roughly the same on a per trade basis. Thus, your day trading system must be much more consistent and robust to stay ahead of the costs of trading than would an intermediate to long-term system. There are few day trading approaches that meet this test.
Since market price action is mostly random, successful trading methods must somehow exploit a non-random feature of market price action. The tendency of most markets to trend is the only possible edge in trading, so a winning approach must harness trend in some way. Tradeable trends do not show up often in the very short term. They certainly are not present every day. That is why the person who tries to day trade at least once every day, and perhaps even more often, is doomed to failure. The more often you day trade, the more likely it is that you will be a long-term loser. (more…)
He is well worth paying attention to.
This, in particular:
There is actually a very interesting test to determine if there is any skill in an activity, and that is to ask if you can lose on purpose. If you can lose on purpose, then there is some sort of skill. Investing is very interesting because it is difficult to build a portfolio that does a lot better than the benchmark. But it is also actually very hard, given the parameters, to build a portfolio that does a lot worse than the benchmark. What that tells you is that investing is pretty far over to the luck side of the continuum. That is the first important thing.
From that one paragraph, and the logical conclusions that follow (there is a lot more to it than that one paragraph) … a few important points:
Saffron drinks???
