Nice way to show how the investor sentiment cycle lags behind the business cycle, yet manages to follow it . . .
Archives of “business cycle” tag
rss20 Wisdom Points from the Book ‘Superperformance Stocks’
If you read Jesse Livermore’s “How to Trade in Stocks” from 1940, Nicolas Darvas’s ‘How I made 2M in the stock market” from 1960, Richard Love’s “Superperformance Stocks” from 1977, William O’Neil’s early version of “How to make money in stocks” from the 1990s or Howard Lindzon’s “The Wallstrip Edge” from 2008, you will realize that after so many years, the main thing that has changed in the market is the names of the winning stocks. Everything else important – the catalysts, the cyclicality in sentiment, has remained the same.
Here are some incredible insights from Richard Love’s book ‘Superperformance Stocks’. In his eyes, a superperformance stock is one that has at least tripled within a two-year period.
1. The first consideration in buying stock is safety.
Safety is derived more from the good timing of the purchase and less from the financial strength of the company. The stocks of the nation’s largest and strongest corporations have dropped drastically during general stock market declines.
The best time to buy most stocks is when the market looks like a disaster. It is then that the risk is lowest and the potential rewards are highest.
2. All stocks are price-cyclical
For many years certain stocks have been considered to be cyclical; that is, the business of those companies rose and fell with the business cycle. It was also assumed that some industries and certain companies were noncyclical— little affected by the changes in business conditions. The attitude developed among investors that cyclical industries were to be avoided and that others, such as established growth companies, were to be favored. To a certain extent this artificial division of companies into cyclical and noncyclical has been deceptive because although the earnings of some companies might be little affected by the business cycle the price of the stock is often as cyclical as that of companies strongly affected by the business cycle. Virtually all stocks are price-cyclical. Stocks that are not earnings-cyclical often have higher price/earnings ratios, and thus are susceptible to reactions when the primary trend of the market begins to decline. This can occur even during a period of increasing earnings.
3. A Superb Company Does Not Necessarily Have a Superb Stock. There are no sure things in the market
There has been a considerable amount of investment advice over the years that has advocated buying quality. ”Stick to the blue chips,” it said, “and you won’t be hurt.” But the record reveals that an investor can be hurt severely if he buys a blue chip at the wrong time. And even if he does not lose financially, he usually has gained very little, particularly considering the risks he has taken. (more…)
Jesse Livermore with Edwin Lefevre, dated circa 1922
What follows is a never before published “interview” with Jesse Livermore.
Conducted by Edwin Lefevre, dated circa 1922, this “interview” reveals great insights into the mind of the famous trader. As we will see, the wisdom imparted here could change our entire perspective on the speculative game we love and enjoy. It might even change our lives. I took the liberty of editing it due to its length.
Lefevre: Hello Mr Livermore. Thank you for taking the time to conduct this series of interviews with me. It is my understanding that you do not grant many interviews, so I am honored.
Livermore: You are very welcome. I appreciate the respect but you do not have to address me as Mr. Jesse, or my nickname, the boy plunger, will suffice.
Lefevre: And where did you get the name boy plunger?
Livermore: It was during the early days when I was trading small lots in the bucket shops, where the man who traded in twenty shares at a clip was suspected of being J.P. Morgan traveling incognito. I didn’t have a following. I kept my business to myself. As it was, it did not take long for the bucket shops to get sore on me for beating them. I’d walk in and plank down my margin, but they’d look at it without making a move to grab it. They’d say nothing doing. That is when they started calling me the boy plunger. I had to move from shop to shop, even to the point of changing my name. I couldn’t put trades on without getting cheated on the quotes. This was in Boston, so I then moved to where the real action was, to New York. I was 21 at the time.
Lefevre: Were you making money? (more…)
Trading Wisdom Via John Templeton
- There is only one long term investment objective, maximum total after tax return.
- Success requires study and work. It’s harder than you think.
- Outperforming the majority of investors requires doing what they are not doing.
- Buy when pessimism is at its maximum, sell when optimism is at its maximum.
- Therefore, buy what most investors are selling.
- Buying when others have despaired, and selling when they are full of hope, takes fortitude.
- Bear markets aren’t forever. Prices usually turn up a year before the business cycle hits bottom.
- Popularity is temporary. When a sector goes out of fashion, it stays out for many years.
- In the long run, stock index prices fluctuate around the EPS trend line.
- Stock index earnings fluctuate around replacement book value for the stocks in the index.
- Buy what other people buy and you will succeed or fail as other people do.
- Timing: buy when short term owners have finished selling and sell when they’ve finished their buying, always opposing the fashion.
- Stock prices fluctuate more than values. So stock indexes will never produce the best total return performance.
- Focus on value because most investors focus on outlooks and trends.
- Invest worldwide.
- Stock price fluctuations are proportional to the square root of the price.
- Sell when you find a much better bargain to replace what you are selling.
- When your method becomes popular, switch to an unpopular method.
- Stay flexible. No asset or method is forever.
- Stock market investing takes more skill than any other kind of investing.
- A person can outperform a committee.
- If you begin with prayer, you will think more clearly and make fewer mistakes.
Bull vs Bear Market
Bull Markets: Fear of missing out.
Bear Markets: Fear of being in.
Bull Markets: Everything I buy is going up — I’m a genius.
Bear Markets: Everything I buy is going down — I’m an idiot.
Bull Markets: See, fundamentals always win out.
Bear Markets: See, technicals and sentiment rule the markets.
Bull Markets: I knew I should have had more of my portfolio in stocks.
Bear Markets: I knew I should have had more of my portfolio in bonds.
Bull Markets: That guy’s been calling for a crash for years — he’s an idiot.
Bear Markets: That guy just called the crash — he’s a genius. (more…)
Bull Markets vs Bear Markets
Bull Markets: Fear of missing out.
Bear Markets: Fear of being in.
Bull Markets: Everything I buy is going up — I’m a genius.
Bear Markets: Everything I buy is going down — I’m an idiot.
Bull Markets: See, fundamentals always win out.
Bear Markets: See, technicals and sentiment rule the markets.
Bull Markets: I knew I should have had more of my portfolio in stocks.
Bear Markets: I knew I should have had more of my portfolio in bonds.
Bull Markets: That guy’s been calling for a crash for years — he’s an idiot.
Bear Markets: That guy just called the crash — he’s a genius.
Bull Markets: I want to be a long-term buy and hold investor.
Bear Markets: I want to be a short-term trader. (more…)
Bull Markets vs. Bear Markets :Some Facts
Bull Markets: Fear of missing out.
Bear Markets: Fear of being in.
Bull Markets: Everything I buy is going up — I’m a genius.
Bear Markets: Everything I buy is going down — I’m an idiot.
Bull Markets: See, fundamentals always win out.
Bear Markets: See, technicals and sentiment rule the markets.
Bull Markets: I knew I should have had more of my portfolio in stocks.
Bear Markets: I knew I should have had more of my portfolio in bonds.
Bull Markets: That guy’s been calling for a crash for years — he’s an idiot.
Bear Markets: That guy just called the crash — he’s a genius.
Bull Markets: I want to be a long-term buy and hold investor.
Bear Markets: I want to be a short-term trader.
Bull Markets: I’m glad I was buying during the last market crash.
Bear Markets: Never try to catch a falling knife.
Bull Markets: I’ll sit tight when the market falls.
Bear Markets: Dear Lord, get me out of stocks NOW!
Bull Markets: Time to buy stocks?
Bear Markets: Time to sell stocks? (more…)
NUGGETS OF WISDOM
1.) It’s not valuation that matters. It’s risk and reward in the growth cycle of each company. – Leigh Drogen “The Coming Tech Crash”
2.) Most importantly for the upside of the market, no one owns stocks.
There are millions of traders flipping stock with institutions in high growth names, but there are no rational conversations about the growth opportunities.
– Howard Lindzon, There’s no Bubble. There’s Entrepreneur Envy!
3.) The media latches on to Steve Jobs not distributing the cash and thank god he laughs in their faces. Why should he trust the public with that cash. The public has proven to be imbeciles.
– Howard Lindzon, There’s no Bubble. There’s Entrepreneur Envy!
4.) Err on side of caution, hit the gas when deemed apropos, and don’t paradiddle. – A comment to Chessnwine’s post , “You call yourself a trader, you sonofabitch”
5.) Nietzsche was right- what doesn’t kill you makes you stronger. – Pension Pulse, “Put Yourself First“
6.) “You’ve got to have the passion to do your time. If you haven’t done the time, you just can’t get there.” He goes on to argue that only by paying one’s dues through time, effort, devotion, and experience can we, “develop the rich experiences that make life meaningful.” – Top 10 Things That Determine Happiness
7.)Economists who adhere to rational-expectations models of the world will never admit it, but a lot of what happens in markets is driven by pure stupidity – or, rather, inattention, misinformation about fundamentals, and an exaggerated focus on currently circulating stories. – Robert Schiller, via Stone Street Advisors ” Driven by Stupidity“
8.) No company gets to be worth twice as much in 60 days as it was before to any intelligent person, so when that happens, we take advantage of it. – Steve Wynn , via Stone Street Advisors “ Driven by Stupidity“
9.) Keep in mind that you dont have to be sending orders to be working. Avoid nurturing the belief that nonparticipation is not working. This leads to overtrading or compulsion which is the practice of poor risk management.
10.) A series of loses first eats into your account balance, and then begins to eat into what is most important of all: your confidence. Trade with confidence or don’t trade at all. If you cant take the heat, stay out of the kitchen.
ECB Purchases Of Sovereign Bonds Surge Tenfold Compared To Prior Week, Hit €1.4 Billion
After dropping to a modest €134 million last week, ECB purchases of sovereign debt exploded tenfold in the last ended week to €1.384 billion, confirming that the ECB continues to bid up all Portuguese and Irish bonds available for sale, so the market does not crash. As Reuters notes, this is the highest weekly amount purchase since early July. Once again it is up to the European Fed-equivalent to be the buyer of only resort. And Europe’s continued central bank facilitated life support comes on the heels of the latest joke in recession timing: per Dow Jones, the Center for Economic Policy Research Monday said its Euro Area Business Cycle Dating Committee had determined that the currency area’s recession began in January 2008 and ended in April 2009, lasting a total of 15 months and reducing gross domestic product by 5.5%. Some recovery there, when half the PIIGS have no access to capital markets, have their Prime Ministers mocked during conference calls, and are fighting with an exchange rate last seen long before Greece, Portugal, Spain and Ireland had to be rescued. We wonder what the CEPR’s timing on the end of the European depression will end up being?
25-One Liners for Traders (Read and Understand ) -Anirudh Sethi
- If you need to spend your money in a relatively short period of time it doesn’t belong in the stock market.
- If you want to earn higher returns you’re going to have to take more risk.
- If you want more stability you’re going to have to accept lower returns.
- The stock market goes up and down.
- If you want to hedge against stock market risk the easiest thing to do is hold more cash.
- Risk can change shape or form but it never really goes away.
- No Trader is right all the time.
- No Trading strategy can outperform at all times.
- Almost any Trader can outperform for a short period of time.
- Size is the enemy of outperformance.
- Brilliance doesn’t always translate into better Trading results.
- “I don’t know” is almost always the correct answer when someone asks you what’s going to happen in the markets.
- Watching your friends get rich makes it difficult to stick with a sound Trading plan.
- Day trading is hard.
- Outperforming the market is hard (but that doesn’t mean it’s impossible).
- There is no signal known to man that can consistently get you out right before the market falls and get you back in right before it rises again.
- Most backtests work better on a spreadsheet than in the real world because of competition, taxes, transaction costs and the fact that you can’t backtest your emotions.
- It’s almost impossible to tell if you’re being disciplined or irrational by holding on when your investment strategy is underperforming.
- Reasonable investment advice doesn’t really change all that much but most of the time people don’t want to hear reasonable investment advice.
- Successful Trading is more about behavior and temperament than IQ or education.
- Don’t be surprised when we have bear markets or recessions. Everything is cyclical.
- You are not George Soros or Jesse Livermore
- The market doesn’t care how you feel about a stock or what price you paid for it.
- The market doesn’t owe you high returns just because you need them.
- Predicting the future is hard.