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POSITION ENTRY

  
  Education
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Why not buy at the bottom of the cup? The Risk is Higher

  • The objective is not to buy at the cheapest price when the probability of the stock having a huge move may be only so-so.
  • The objective is to buy at exactly the right time — the time when the chances are greatest that the stock will succeed and move up significantly.
  • I found through our detailed historical studies that a stock purchased at this correct “pivot point,” if all the other fundamental and technical factors of stock selection are in place, will simply not go down 8% (your protective sell rule), and has the greatest chance of moving substantially higher. So ironically, if done correctly, this is your point of least risk.
  • On the day the stock breaks out, its trading volume should increase at least 50% above its average daily trading volume.

Pyramid your initial buy

  • After your initial purchase (50% of your full position), identify a price area at which you will add a small amount as a follow-up buy if it continues to perform well.
  • I usually add more once a stock is up 2.5% to 3% from my first buy (32.5% of your full position).
  • If the stock advances 2% or 3% more, you may complete your position (17.5% of your full position).
  • Then stop buying that stock. You’ve got your basic position in the stock during its first 5% advance. Sit back and give it some time and room to grow.

A Study in the Psychology of Gambling- Written in Year 1873

  
  Education
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In a 1873 letter to The Spectator entitled “A Study in the Psychology of Gambling” Saxon-les-Bains describes his gambling experience in Monte Carlo.

And what was my experience?  This chiefly, that I was distinctly conscious of partially attributing to some defect of stupidity in my own mind, every venture on an issue that proved a failure; that I groped about within me something in me like an anticipation or warning (which of course was not to be found) of what the next event was to be, and generally hit upon some vague impulse in my own mind which determined me: that when I succeeded I raked up my gains, with a half impression that I had been a clever fellow, and had made a judicious stake, just as if I had really moved skillfully as in chess; and that when I failed, I thought to myself, ‘Ah, I knew all the time I was going wrong in selecting that number, and yet I was fool enough to stick to it,’ which was, of course, a pure illusion, for all that I did know the chance was even, or much more than even, against me.  But this illusion followed me throughout.  I had a sense of deserving success when I succeeded, or of having failed through my own willfulness, or wrong-headed caprice, when I failed.  When, as not infrequently happened, I put a coin on the corner between four numbers, receiving eight times my stake, if any of the four numbers turned up, I was conscious of an honest glow of self-applause…

Evidently, in spite of the clearest understanding of the chances of the game, the moral fallacy which attributes luck or ill luck to something of capacity and deficiency in the individual player, must be profoundly ingrained in us.   I am convinced that the shadow of merit and demerit is thrown by the mind over multitudes of actions which have no possibility of wisdom or folly in them, granted, of course, the folly in gambling at all, as in the selection of the particular chance on which you win or lose.  When you win at one time and lose at another, the mind is almost unable to realize that there was no reason accessible to yourself why you won and why you lost.  And so you invent what you know perfectly well to be a fiction, the conception of some sort of inward divining rod which guided you right, when you used it properly, and failed only because you did not attend ‘adequately to its indications.’

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