Archives of “Business_Finance” tag

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Weekend Reading :"Gold Is Money And Nothing Else" – JP Morgan's Full December 1912 Testimony To Congress

  
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In December 1912, no lessor man than J.P.Morgan testified to Congress to “justify Wall Street,” during investigations over alleged manipulation and collusion. The transcript reads like it could have been given yesterday (as nothing ever changes) but at its heart the banker laid out 33 “Morgan Epigrams” which appear – in the ensuing 102 years – have been lost to greed and arrogance… The irony is wondrous: “Securities do not always prove good”, “Money is gold, and nothing else”, “I think manipulation is always bad.”

 J.P.Morgan’s 33 Epigrams:

1. I have absolute faith in the patriotism and public spirit of the Stock Exchange.

2. The moral responsibility has to be defended as long as you live.

3. Securities do not always prove good.

4. It is difficult to get stockholders to take active interest in their companies.

5. I do not believe I could carry any question through any board against the views of the other directors.

5. I like a little competition, but I should rather have co-operation. Without actual control, you can do nothing. (more…)

Intuition & Vision in Trading

  
  Education
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 Intuition – A qualitative virtue recognized by few and held by even less. Our intuition is the byproduct of the analysis performed by our subconscious. It acts much like a muscle and requires exercise to develop and grow. Like a muscle, neglect can cause atrophy. Traders with a strong intuition built on a strong trading strategy put themselves in an ideal position to achieve consistent success in the market. Over time, traders can feel the energy a market gives off and can execute trades from this. It is an invaluable tool in one’s trading arsenal.

Vision – While total clairvoyance as to future price movement is unrealistic. It is my goal as a trader to assimilate as much information as possible with the goal of playing out scenarios that tie in together. It’s not always easy to do, yet understanding trading does not occur in a vacuum and markets do exhibit funny things get you mentally prepared to deal with these outlier events. Those that can think for themselves and need not rely on templatized news releases for their ideas usually put themselves in a position to benefit from their forward thinking.

We have heard many times about leaders who saw an industry trend before it happened. This was no accident. It came as a result of their understanding of their field and what could change it for the better. Traders who gain an understanding of how things can potentially play out and factor that into their trading strategy go a long way to keeping their objectivity when things unfold in a fast and volatile market.

Chemistry and Markets

  
  Education
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Since the topic of chemistry/market analogies has come up, I’m reminded of something I noticed while studying economics. Anyone else notice some resemblance between stoichiometry and the Cobb-Douglas production function?

Stoichiometry and the reaction rate equation: r = k(T) * A^n * B^m

And the Cobb-Douglas production function: Y=AL^{\beta}K^\alpha

What kind of “chemical” reactions can we find in the markets?

Something like this?

Trader-Cash_p + Stock <-> Trader-Stock + Cash_p

An important difference with this “reaction” is that _p, which is price, fluctuates; whereas chemical reactions always have the same stoichiometry. So, are there any useful analogies?

Peter Lynch's Interview-Video

  
Analysis, Education, Video
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[ooyala_video_embed ec=xzcDE2aToIfa39eSMWdNEabn430CPd7H][/ooyala_video_embed]
 

Legendary investor Peter Lynch (formerly of Fidelity’s Magellan Fund) sat down for a rare interview with Charlie Rose.  In it, he talks about philanthropy, what makes good management, and more.
Lynch notes that he’s now working with some young analysts but the only investing he’s doing now is for himself and for charity. 
He joked that he was a “bottom down” investor.  He likes to invest in the second or third inning of a story, noting that you could have bought Walmart (WMT) ten years after it went public and still done extremely well on that investment.
He identified the three C’s in investing: complacency, concern, and capitulation.  He said complacency is the worst one. (more…)

Timeline — from Thomas Edison to the unwinding of GE Capital

  
Analysis, Education
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1890 — Four companies representing inventor Thomas Edison’s interests merge to form the Edison General Electric Company.

1932 — GE Credit Corporation begins to offer credit to customers to buy General Electric appliances.

1981 — Under chief executive Jack Welch, GE Capital begins a dramatic ascent. Between 1986 and 1993 profits double to $1.5bn and assets to $155bn. GE Capital becomes the world’s largest car-leasing company, the world’s largest ship container leasing company and the biggest private mortgage insurer.

2004 — GE Capital buys Dillard’s credit card unit for $1.25bn.

2008 — As the credit markets seize up, GE announces its first fall in quarterly profits for five years. In September, chief executive Jeff Immelt calls Henry Paulson, the then Treasury secretary, to say GE “was finding it very difficult to sell its commercial paper for any term longer than overnight”.

2011 — GE buys MetLife Bank, an online retail banking arm.

2013 — Mr Immelt sets a target that GE Capital should provide no more than 30 per cent of group earnings.

2014 — GE Capital has $7bn of net income, assets of $499bn and more than 35,000 employees. It operates in 40 countries. In the US, GE takes Synchrony Financial, its store credit card arm, public in a $2.88bn initial public offering.

2015 — Mr Immelt announces plans to sell the bulk of GE Capital over the next two years and return the company to its manufacturing roots.

24 Mistakes done by 90% of Traders

  
  Education
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  • EGO (thinking you are a walking think tank, not accepting and learning from you mistakes, etc.)MISTAKE-UPDATE
  • Lack of passion and entering into stock trading with unrealistic expectations about the learning time and performance, without realizing that it often takes 4-5 years to learn how it works and that even +50% annual performance in the long run is very good
  • Poor self-esteem/self-knowledge
  • Lack of focus
  • Not working hard enough and treating your stock trading as a hobby instead of a small business
  • Lack of knowledge and experience
  • Trying to imitate others instead of developing your unique stock trading philosophy that suits best to your personality
  • Listening to others instead of doing your own research
  • Lack of recordkeeping
  • Overanalyzing and overcomplicating things (Zen-like simplicity is the key)
  • Lack of flexibility to adapt to the always/quick-changing stock market
  • Lack of patience to learn stock trading properly, wait to enter into the positions and let the winners run (inpatience results in overtrading, which in turn results in high transaction costs)
  • Lack of stock trading plan that defines your goals, entry/exit points, etc.
  • Lack of risk management rules on stop losses, position sizing, leverage, diversification, etc.
  • Lack of discipline to stick to your stock trading plan and risk management rules
  • Getting emotional (fear, greed, hope, revenge, regret, bragging, getting overconfident after big wins, sheep-like crowd-following behavior, etc.) (more…)

The High Priests of Finance

  
  Education
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Finance even has its own high priests in the form of the analysts and fund managers who promise their clients heavenly rewards if only they listen to their advice. They preach regular sermons in the form of brokers’ notes and quarterly reports, and they house themselves in vast cathedral-like buildings that dominate the skyline. Each day also has its canonical hours as traders pray for profitable opportunities at the European, American and Asian market openings. Finance has its annual calendar, too, marked with festivals known as results seasons in which the lucky participants receive their temporal (rather than spiritual) dividends.

And like any self-respecting religion, finance has its doctrinal schisms as well. Active fund managers are a bit like the medieval Catholic church, offering eternal salvation to those willing to pay the appropriate sum, which are known in modern parlance as performance fees rather than indulgences. The active-investment sect has its elaborate rituals and language, with a liturgy (“information ratios” and “alpha generation”) as baffling to the layman as the Latin mass was to the medieval peasant. Clients are supposed to listen to their presentations in a reverential hush, trusting that all the mumbo-jumbo will deliver superior results. The passive fund managers, or index-trackers, are akin to early Lutherans. Investors have no need for priestly intermediaries between them and the market, say the index-trackers. All they require is the full text of those companies that are included in the benchmark. (more…)

5 Basic Tasks Necessary To Become A Winning Trader

  
  Education
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  1. Develop a competent analytical methodology.
  2. Extract a reasonable trading plan from this methodology.
  3. Formulate rules for this plan that incorporate money management techniques.
  4. Back-test the plan over a sufficiently long period.
  5. Exercise self-management so that you adhere to the plan. The best plan in the world cannot work if you don’t act on it.

40 Great Quotes of Ed Seykota (Must Read )

  
  Education
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Ed Seykota, first featured in the book  Market Wizards has one of the best records of all time for any trader. Ed Seykota’s returns on capital compares to those achieved by Warren Buffett, George Soros or William J. O’Neil. He is among the trading gods with no doubt. What does he find important in trading success? Mr. Seykota has a keen focus on trader psychology above all other trading dynamics. Seykota’s website Trading Tribe spends more time advising it’s readers on proper trading  psychology than anything else. Most traders are not concerned with their own psychology and instead focus on entries and exits, with trading systems and making money, not their mind and emotions. This is generally their undoing. The longer you trade and the bigger your account grows the more I see the crucial importance of mindset in the trader’s success or failure. When a losing streak sets in the trader finds out what his underlying issues are and how he handles losing is the key to his long term success. The traders ego management determines his success as much as his trading system and risk management. An an ego can cause you to let losers run and bet far too much on any one trade. An unchecked ego can destroy your account. The market is a terrible place to learn about internal issues by losing money. Here are some quotes that changed how I thought about trading early on and have kept me on the right path to consistent profits. (more…)

Pearls of Wisdom From King of Sugar

  
  Education
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Kerry Group Chairman Robert Kuok is pictured at a ground breaking ceremony for the Shangri-La Asia Ltd.'s new hotel in Guangzhou, China Thursday, February 26, 2004. The other men are unidentified. Photographer: Grischa Rueschendorf/BloombRobert Kuok, the billionaire Malaysian entrepreneur, maybe better known as the man behind the Shangri-La Asia hotel group, but in the commodities world, he is nicknamed the “King of Sugar”.

The 91-year old tycoon and uncle of Wilmar co-founder and chief executive Kuok Khoon Hong, still watches the sugar market daily, and trades the commodity so he can pay for his bottles of Petrus 1989, one of the world’s rarest and most expensive wines.

Mr Kuok rarely gives interviews, but he shared his trading philosophy with Jonathan Kingsman, founder of Kingsman sugar consultancy and occasional Financial Times commentator, for his recently published book The Sugar Casino .

Here are some of his pearls of wisdom:

Always take profits promptly

“Not knowing when to take a profit is the Achilles heel for a trader. Take profits! Don’t wait. If you have a profit you have to take it. If you wait it will be your downfall.”

The sugar market is prone to over supply

“In the sugar market, there is always over production. There is no point hoarding sugar. There is always a bumper crop coming up.” (more…)

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