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Niederhoffer on making errors

As a squash player, I was gifted. I had all the right things going for me. I practiced. I was very good with the racket, and I had tremendous anticipation. But I tended to play an errorless game by hitting a slice on my backhand, which took a lot of power off the ball. That wasn’t a disaster, but it was definitely a weakness in my game. My opponents always used to say that on a good day they could beat me, because they could hit more spectacular shots than me. But they never did. I went for about 10 years without losing a game, except to [the great Pakistani squash player] Sharif Kahn. He made about six, seven errors a game—but he also made eight or nine winners. I would make about zero errors per game but only one or two winners. He had the edge on me about 10-4, and I regret that I was never willing to accept the risky shots and confrontations, never willing to play a more error-full game.

In my market career, I took too many risks. In my squash career, I didn’t take enough.

I wish I had applied my squash methods to my speculating. I’d be a very wealthy man if I had.

Are You A Successful Speculator ?

If you never trade, can you be a successful speculator?

If you  cost average, and are disciplined, are you a successful speculator?

If you compound at 50% per year for 10 years, and then lose everything in an afternoon, are you a successful speculator?

If you lose everything in an afternoon, and then learn from your mistake, and then compound at 50% for the next 10 years, are you a successful speculator?

If you compound at 6% per year for 10 years, and never have a meaningful drawdown, are you a successful speculator?

If the risk free rate is 6%, and you are making 12%, are you a more successful speculator then if the risk-free rate is 0% and you are making 6%?

If you think you are a successful speculator, can you really be a successful speculator?

If you think you are not a successful speculator, can you be a successful speculator?

Who are the most successful speculators of the past 100 years? Who are the least successful speculators of the past 100 years? 

Wireless Electricity is the future

WIRELESS

I’ve talked about a coming tech boom that could be related to wireless electricity. Nobody really knows exactly when that will happen except that it could be 5-10 years away. Well, it could be even sooner that that. Much sooner.

Read more here:

Electronics such as phones and laptops may start shedding their power cords within a year.

That’s the prediction of Eric Giler, CEO of WiTricity, a company that’s able to power light bulbs using wireless electricity that travels several feet from a power socket. (more…)

Niederhoffer on making errors

As a squash player, I was gifted. I had all the right things going for me. I practiced. I was very good with the racket, and I had tremendous anticipation. But I tended to play an errorless game by hitting a slice on my backhand, which took a lot of power off the ball. That wasn’t a disaster, but it was definitely a weakness in my game. My opponents always used to say that on a good day they could beat me, because they could hit more spectacular shots than me. But they never did. I went for about 10 years without losing a game, except to [the great Pakistani squash player] Sharif Kahn. He made about six, seven errors a game—but he also made eight or nine winners. I would make about zero errors per game but only one or two winners. He had the edge on me about 10-4, and I regret that I was never willing to accept the risky shots and confrontations, never willing to play a more error-full game.

In my market career, I took too many risks. In my squash career, I didn’t take enough.

I wish I had applied my squash methods to my speculating. I’d be a very wealthy man if I had.

Top 10 list from billionaires as to be successful

1. Figure out what you’re so passionate about that you’d be happy doing it for 10 years, even if you never made any money from it. That’s what you should be doing.
2. Always be true to yourself.
3. Figure out what your values are and live by them, in business and in life.
4. Rather than focus on work-life separation, focus on work-life integration.
5. Don’t network. Focus on building real relationships and friendships where the relationship itself is its own reward, instead of trying to get something out of the relationship to benefit your business or yourself.
6. Remember to maximize for happiness, not money or status.
7. Get ready for rejection.
8. Success unshared is failure. Give back — share your wealth.
10. Successful people do all the things unsuccessful people don’t want to do.

What would you add to the “Billionaire’s Secrets” List?

10,000 hours

1000hrsIn his recent book Outliers: The Story of Success, Malcolm Gladwell describes the 10,000-Hour Rule, claiming that the key to success in any cognitively complex field is, to a large extent, a matter of practicing a specific task for a total of around 10,000 hours. 10,000 hours equates to around 4hrs a day for 10 years. For some reason most people that ‘try their hand’ at trading view it as a get rich quick scheme. That in a very short space of time, they will be able to turn $500 into $1 million! It is precisely this mindset that has resulted in the current economic mess, a bunch of 20-somethings being handed the red phone for financial weapons of mass destruction. The greatest traders understand that trading much like being a doctor, engineer or any other focused and technical endeavor requires time to develop and hone the skill set. Now you wouldn’t see a doctor performing open heart surgery after 3 months on a surgery simulator. Why would trading as a technical undertaking require less time?

Trading success, comes from screen time and experience, you have to put the hours in.

Niederhoffer on making errors

 

As a squash player, I was gifted. I had all the right things going for me. I practiced. I was very good with the racket, and I had tremendous anticipation. But I tended to play an errorless game by hitting a slice on my backhand, which took a lot of power off the ball. That wasn’t a disaster, but it was definitely a weakness in my game. My opponents always used to say that on a good day they could beat me, because they could hit more spectacular shots than me. But they never did. I went for about 10 years without losing a game, except to [the great Pakistani squash player] Sharif Kahn. He made about six, seven errors a game—but he also made eight or nine winners. I would make about zero errors per game but only one or two winners. He had the edge on me about 10-4, and I regret that I was never willing to accept the risky shots and confrontations, never willing to play a more error-full game.

In my market career, I took too many risks. In my squash career, I didn’t take enough.

I wish I had applied my squash methods to my speculating. I’d be a very wealthy man if I had.

 

Reacting versus Predicting in Trading

Most of the best traders I have read about and know of personally do not predict what will happen they trade what is happening. New traders always want to predict, they want to argue about their beliefs and why something must happen or will happen. Most rich traders are rich because they are flexible, they have no strong opinions and are just looking at possibilities and ready to take a set up, buy a break out or short a break down. A new trader believes that ‘conviction’ about a trade is important, holding through an adverse move is usually a bad idea, especially if a key level is reached that is showing the trader that they are wrong. A rich trader is waiting for some price level to trigger their entry then another price level to trigger their exit. A new trader is trading off a belief and has no real exit plan most the time because they are sure that they are right.

The money I have pulled out of the market over the past 10 years has come from trading price action not predicting. I have entered at high probability moments on break outs above resistance levels. I have trailed my winning trend trades with a stop and sold when the trend reversed through key short term support. When I was wrong I stopped out for a small loss, when I was right I let the winner run up for a very big win. I am always trend hunting, always taking my high probability trades, always cutting losses short, and when not seeing a great trade doing nothing and waiting.

Coast is Clear

1. Swear off the stock market forever. Look, the reality is that making money in the stock market is hard. Most of us just don’t have the emotional makeup to do it. That’s OK. If during the last 10 years you’ve found yourself making big behavior mistakes over and over, then stop. You might be  better off just committing yourself to a life of owning only certificates of deposit, given how poor your stock returns could be if you trade too much.

2. Act like you have a blind trust. Find someone you trust, give them your money, tell them to buy you an index fund and then have them update you again in five years. This could be a financial planner like me, but you could also enlist a trustworthy friend who won’t charge you anything for the privilege.

I know that there are people who have been successful, people who behaved correctly. If you are one of them, congratulations and keep doing what you’ve been doing.

But we have to recognize that the way most of us have been doing things hasn’t worked, and it probably won’t work in the future.

Words of Wisdom from Colm O’Shea

In “Hedge Fund Market Wizards”, Jack Schwager interviews Colm O’Shea of Comac Capital. There are some great quotes in the interview and here are some of my favourites:

 You need to implement a trade in a way that limits your losses when you are wrong, and you also need to be able to recognize when a trade is wrong.

 … what strikes me about really good managers (is that) they don’t get attached to their ideas.

 You need a method that suits your personality.

 People who like trading because they like gambling are always going to be terrible at it. For these people, the trading books could be greatly shortened to the message: “Don’t trade. You are really bad at this. So just don’t do it.”

 Traders who are successful over the long run adapt. If they do use rules, and you meet them 10 years later, they will have broken those rules. Why? Because the world has changed. (more…)