Though few Americans know his name, Larry Fink may be the most powerful man in the post-bailout economy. His giant BlackRock money-management firm controls or monitors more than $12 trillion worldwide—including the balance sheets of Fannie Mae and Freddie Mac, and the toxic A.I.G. and Bear Stearns assets taken over by the U.S. government last year. How did Fink rebound from a humiliating failure to become the financial fulcrum of Washington and Wall Street? Through a series of interviews, the author probes his role in the crisis, his unique risk-assessment system, and the growing concern he inspires.
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You must trade without emotions. If you are human, that’s impossible. More importantly, when you understand your emotions, you will realize they are assets, not liabilities. The real keys are:
- Being aware of how your emotions interact with and influence your trading, and…
- Developing the skills needed to trade with them
“When the wind changes direction, there are those who build walls and those who build windmills. We would like to build windmills.”
“On acquisitions: Don’t ask a barber whether you need a hair cut”
“Knowing our limitations is the key.”
“How does Warren balances between his heart, mind or pocket?”
“On philanthropy: We don’t intend to become the richest person in the cemetery.”
“90% of our assets go home in the night and hopefully return the next morning. People are our assets.”
“Be open to learning. Learning belongs to the future and knowledge belongs to the past.”
“If you sleep on the floor you are not going to fall off the bed. Stay with the basics.”
1 Risk is not the same as volatility. Assets can be volatile on the upside as well as the downside. Risk should instead be viewed as the permanent loss of purchasing power.
2 A risk should not be evaluated based its frequency. Some risks only have to happen once to be catastrophic.
3 Sophistication and knowledge are not a form of or substitute for risk management.
4 Although following the crowd may feel comfortable, risks are just as catastrophic whether you suffer with company or suffer alone.
5 Bullish consensus manufacturers the greatest risks because nobody is prepared and everyone runs for the exits at the same time. Strong optimistic consensus provides a sense that nothing can go wrong. This is why the greatest catastrophes seem to come out of the blue.
6 Activity, research and analysis provides a false sense of control over the future. However devastating losses rarely due to a lack of brain power or analytical prowess.
Adam Grimes (Chief Investment Officer of Waverly Advisors) prefaces his 2012 book, The Art and Science of Technical Analysis: Market Structure, Price Action, and Trading Strategies, by stating: “This book…offers a comprehensive approach to the problems of technically motivated, directional trading. …Trading is hard. Markets are extremely competitive. They are usually very close to efficient and most observed price movements are random. It is therefore exceedingly difficult to derive a method that makes superior risk-adjusted returns, and it is even more difficult to successfully apply such a method in actual practice. Last, it is essential to have a verifiable edge in the markets–otherwise no consistent profits are possible. This approach sets this work apart from the majority of trading books published, which suggest that simple patterns and proper psychology can lead a trader to impressive profits. Perhaps this is possible, but I have never seen it work in actual practice. …The self-directed trader will find many sections specifically addressed to the struggles he or she faces, and to the errors he or she is likely to make along the way. …[Institutional] traders will also find new perspectives on risk management, position sizing, and pattern analysis that may be able to inform their work in different areas.” Using example charts for many assets from different times over different time frames and from different markets, he concludes that:
From Chapter 1, “The Trader’s Edge” (Page 7): “Every edge we have, as technical traders, comes from an imbalance of buying and selling pressure. …we do not trade patterns in the market–we trade the underlying imbalances that create those patterns.”
From Chapter 2, “The Market Cycle and the Four Trades” (Page 45): “When buying pressure seems to be strongest, the end of the uptrend is often near. When the sellers seem to be decisively winning the battle, the stage is set for a reversal into an uptrend. This is why it is so important for traders to learn to stand apart from the crowd, and the only way to do this is to understand the actions and emotions of that market crowd.”
From Chapter 3, “On Trends” (Page 95): “…many outstanding trades come in trending environments. Market structure in trends is often driven by a strong imbalance of buying and selling pressure, it is often easy to define risk points for trades, and some of the cleanest, easiest trades come from trends. However, markets do not always trend.” (more…)
In a recent speech to a class at Harvard Business School Mark Sellers, founder of Chicago-based hedge fund Sellers Capital, argues that great traders are born and not bred. He believes that there are seven “structural assets” that cannot be taught, adding, ” They have to do with psychology. You can’t do much about that.”
1) The ability to buy when others are panicking, and vice versa
2) An obsession with the trading game
3) A willingness to learn from past mistakes
4) An inherent sense of risk based on common sense
5) A confidence in your convictions and a willingness to stick with them
6) An ability to have “both sides of your brain working” (i.e. to go beyond the math)
7) The ability to live through volatility without changing your investment thought process
I think that some of the concepts discussed here are spot on (and I spend a great deal of time hammering home the importance of #7) , but I disagree with the overall idea that great traders are born, not made. I believe success in trading is not about a specific style, but rather about understanding your personality traits and then developing a trading style (and which product – i.e. stocks, commodities, fx) that fits you best.
We are who we are. That does not change throughout our life, but we can learn to wait for times when the market is paying our personality type and then generate successful returns when that window of opportunity appears.
After looking at the number of Indian Banks….it looks “All is not well ” The numbers are reminiscent of the previous rate hike cycle. The overall asset quality of Indian banks has started deteriorating. The Indian entities endured a long and painful exercise of cleaning up their asset quality. However, they are once again facing problems sustaining the same.
The latest RBI data shows that the Indian banking system’s gross and net NPAs have risen by 50% YoY and 25% YoY respectively. This certainly is a cause for concern. Banks can distort their NPA proportion by growing assets aggressively. But unless they check the quality of growth, their profits are sure to get eroded.
Nov. 30 (Bloomberg) — The yen weakened against higher- yielding currencies after the United Arab Emirates’ central bank said it “stands behind” the country’s banks, easing concern about a possible default by state-owned Dubai World.
The euro advanced for the first time in five days against the yen after the Abu Dhabi-based central bank of the U.A.E. said lenders will be able to borrow using a special facility tied to their current accounts. The Australian and New Zealand dollars rallied as demand rose for riskier assets after concern eased over credit losses in the Middle East.
“The decision by U.A.E. helped calm down credit woes,” said Akane Vallery Uchida, foreign-currency strategist in Tokyo at Royal Bank of Scotland Plc. “The yen, which was bought over jitters in Dubai, is being sold.”