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The House of Nomura

  
  Education

I just read Alletzhauser’s House of Nomura (1990, out of print) after an old Japan hand recommended it to me. Highly recommend for anyone who wants to understand the history of Japanese business/markets from the Meiji through Showa eras from the perspective of an outsider turned insider. My summary/review/editorializing of the pre-WW2 era (skip to Four Big Bets section for the more market relevant tidbits).

Since the book released in 1990, the author portrays Nomura as omnipotent and triumphant (it was Japan’s most profitable corporation in 1987) in a reverential tone that would seem absurd today. Of course with the benefit of hindsight, we know that Nomura was both partly lucky and partly a beneficiary of circumstances not just in the 1980’s bubble but also at its very founding.

Perhaps more interesting is the glimpse into the business world of Meiji, Taisho, and Showa before WWII. What’s clear is that Japan had Prussian institutions but an Anglo approach to corporate governance. State capitalism produced large conglomerated oligarchies (zaibatsus) that were run for the interest of shareholders. Behavior typically thought of today as “Anglo-styled capitalism”: hostile takeovers, confrontation, shareholder preeminence, creative destruction, cutthroat competition, mobility etc. was a feature of Japanese corporate life. A few elite families dominated pre-WW2 and financial disparities wholly reflected this reality. (more…)

One Liner Quotes From :Market Wizards -Anirudh Sethi

  
Analysis, Education


“Scaling out of a position ensures at least partial profits if move continues while mitigating profitsurrender if mkt reverses”
“You don’t have to get into or out of a position all at once.”
“Traders who are successful over the long run adapt” [O’Shea]
“Traders who fail may have great rules that work, but then stop working.” [O’Shea]
“What we call intuition is the objective synthesis of information based on past experience, unhindered by emotional distortions”
“The trick is to differentiate between what you want to happen and what you know will happen.”
“Whenever you try to get all your losses back at once, you are most often doomed to fail.” [Schwartz]
“Impulsive trades can be dangerous. Trades cited as their most painful by the Market Wizards were usually impulsive ones”
“The market will seldom reward the carelessness of trades born of desperation.”
“The markets are an expensive place to look for excitement.”
 “I don’t trade for excitement; I trade to win.” [Hite] (more…)

THE MOST SUCCESSFUL TRADERS

  
Analysis, Education

The most successful traders can talk in detail about the patterns that they perceive in markets and how they have traded those patterns.  The patterns make sense to them and represent some manner in which markets are “offsides” and thus offer a favorable reward relative to risk.

The least successful traders talk about catching moves in markets and are not focused on particular patterns or setups.  They let market movement define opportunity, rather than allow their definition of opportunity guide their involvement in the market.

Learning From Losers

  
  Education
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Traders will typically approach a large loss in one of two ways. First is the dumb way, and that is to become a petulant whiner and throw a fit. Next is the more-constructive way, and that is to use the loss as a means of developing as a trader and to “quote” — learn from your mistakes. But there is a third way. And that is to view the loss as the cost of information.

I don’t mean the cost of doing business per se. This is not typically associated with large losses. Small losses, yes. Because to make money you have to lose some along the way, as casinos do every day.  And not the cost of tuition where the market charges a fee to school us. No, I mean information.

Instead of asking yourself about where you placed your stops and getting all personal about the whole thing, ask yourself what happened. Why did the market move the way it did? If you haven’t suffered a capital depletion, you are not likely to demand an answer and more likely to throw off the question with a wave of the hand and a shrug. “Who knows, who cares. I only play odds.”

Markets are a beast and if you want to play with them, you’ll have to be careful. Wear protective goggles and gloves. If you want to tame them though, you’ll need to wrestle with them. And sometimes you lose some body parts along the way. 

10 rules, lessons, and examples For Traders

  
  Education
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1. Find and trade markets where your edge is the greatest.
2. Avoid markets were the probability of rule changes and lack of transparency is present.
3. Think of and imagine market scenarios others fail to.
4. Fundamental macroeconomic forces will ultimately prevail.
5. Trading time frames and profit objectives though must coincide with what the market is giving you at any one time.
6. Quantify risk with a multidimensional perspective, not just by one or two measures such as VAR or a price stop.
7. Learn from history. Jay Gould and his attempts to corner the gold markets in the late 1860’s. The Russian default of 1917 and 1998. The European Rate Mechanism break up. The Tequila crisis of 1994. The Asian financial crisis.
8. Be deadly serious, as Gichin Funakoshi said “You must be deadly serious in training”. If you have a position make it a meaningful size and monitor it carefully. I recall many comments from fellow traders the past few years saying something like “I am long EuroSwiss just to have some on but not really watching it.”
9. Define and use a trading methodology that incorporates a process and framework that works for you. Inclusive in this should be a daily routine that includes diet, exercise, family time, etc.
10. Seek out catalysts for CHANGE in markets. Where are the forces, in a Newtonian like law of motion, building up the greatest to cause a CHANGE and movement in markets?

Trading To Win

  
  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. If I’m expecting a bonus from my employer, I’ll be happy when I receive the paycheck–but I’ll be much more upset if I find out the bonus has been rescinded.

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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.

And, if you’re trading well, maybe that losing trade will offer you a fresh perspective about how the market is trading: an insight that can make you money the next time around. Then it’s not a loss. It’s information that you’ve paid for. 

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