Financial Market Analysts have studied the “hemline indicator” for decades. Yet there’s an even deeper connection between fashion trends and the economy’s financial health that most overlook. This three minute clip from the new socionomics documentary History’s Hidden Engine reveals the real significance of what’s in style.
Archives of “decades” tag
rssWarren Buffett's Letter to Shareholders
Our gain in net worth during 2009 was $21.8 billion, which increased the per-share book value of both our Class A and Class B stock by 19.8%. Over the last 45 years (that is, since present management took over) book value has grown from $19 to $84,487, a rate of 20.3% compounded annually.*
Berkshire’s recent acquisition of Burlington Northern Santa Fe has added at least 65,000 shareholders to the 500,000 or so already on our books. It’s important to Charlie Munger, my long-time partner, and me that all of our owners understand Berkshire’s operations, goals, limitations and culture. In each annual report, consequently, we restate the economic principles that guide us. This year these principles appear on pages 89-94 and I urge all of you – but particularly our new shareholders – to read them. Berkshire has adhered to these principles for decades and will continue to do so long after I’m gone.
In this letter we will also review some of the basics of our business, hoping to provide both a freshman orientation session for our BNSF newcomers and a refresher course for Berkshire veterans.
Read Buffett’s full letter to shareholders here.
Great Hunter, Lousy Trader
Making money in the market is an unnatural act. We humans are predators and hunters evolved to track game on the horizon of an African savanna. Modern humans are maybe 5 million years old, but civilization has been around for only 10,000 years. Our brains have not had time to make the adjustment. In the market, this means that if a stock has gone up, you believe it will continue. This is why market tops and bottoms see volume spikes. To make money, you have to go against these innate instincts. Some people are born with this ability, while others can only learn it through decades of training.
The Wisdom of the Legendary Paul Tudor Jones
At 56, Paul Tudor Jonesis a self made billionaire with a net worth of 3.3 billion and is ranked as the 336th richest person in the world, he knows exactly how to trade the biggest money for the biggest returns. One of Jones’ earliest and major successes was anticipating and trading through Black Monday in 1987, tripling his money during the event due to large short positions. The Dow Jones Industrial Average dropped by 508 points to 1738.74 (-22.61%) on that day. While the majority of others lost more than they ever had in their lifetime, Jone’s was on the other side of their trade making a fortune. That is the sign of a truly great trader making money at the tipping points that most others miss. Paul Tudor Jones has returned double digit annual returns to his investors for decades. He is one of the greatest traders to have ever lived, we need to sit up and listen closely to his advice, it is priceless.
Risk Management
“Don’t focus on making money; focus on protecting what you have.”
“Where you want to be is always in control, never wishing, always trading, and always, first and foremost protecting your butt.”
“At the end of the day, the most important thing is how good are you at risk control.”
Trader Psychology
“Every day I assume every position I have is wrong.”
“Losers average losers.”
“Trading is very competitive and you have to be able to handle getting your butt kicked.”
Method
“I believe the very best money is made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all your money by playing the trend in the middle. Well for twelve years I have been missing the meat in the middle but I have made a lot of money at tops and bottoms.”
“The secret to being successful from a trading perspective is to have an indefatigable and an undying and unquenchable thirst for information and knowledge.”
“The concept of paying one-hundred-and-something times earnings for any company for me is just anathema. Having said that, at the end of the day, your job is to buy what goes up and to sell what goes down so really who gives a damn about PE’s?”
“The whole world is simply nothing more than a flow chart for capital.”
That cotton trade was almost the deal breaker for me. It was at that point that I said, ‘Mr. Stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?’
This explains almost everything…
Are we addicted to being right? Is being thought of as being right more important to us than actually being right?
You tell me…
From the Harvard Business Review:
In situations of high stress, fear or distrust, the hormone and neurotransmitter cortisol floods the brain. Executive functions that help us with advanced thought processes like strategy, trust building, and compassion shut down. And the amygdala, our instinctive brain, takes over. The body makes a chemical choice about how best to protect itself — in this case from the shame and loss of power associated with being wrong — and as a result is unable to regulate its emotions or handle the gaps between expectations and reality. So we default to one of four responses: fight (keep arguing the point), flight (revert to, and hide behind, group consensus), freeze (disengage from the argument by shutting up) or appease (make nice with your adversary by simply agreeing with him).
All are harmful because they prevent the honest and productive sharing of information and opinion. But, as a consultant who has spent decades working with executives on their communication skills, I can tell you that the fight response is by far the most damaging to work relationships. It is also, unfortunately, the most common.
If You Have to Be Right, Trouble Ahead
“I confess, I think about the future. So do my colleagues. If someone who’s spent decades investing doesn’t have an opinion about what lies ahead, there’s something wrong. I believe our clients want us to apply the benefit of our experience in gauging and reacting to the opportunities and risks that lie ahead.
But I have a mantra on this subject, too: “It’s one thing to have an opinion; it’s something very different to assume it’s right and act on that assumption.” We have views on the future. And they can cause us to “lean” toward offense or defense. Just never so much that for the results to be good, our views have to be right.”
–Howard Marks, Oaktree Capital Management January 10, 2012
Marks is not a technical trend follower, but wise words about not worrying about being right.
The Dead saw it too:
Drivin’ that train
High on cocaine
Casey Jones you better
watch your speed
Trouble ahead
Trouble behind
and you know that notion
just crossed my mind
Trouble with you is
The trouble with me
Got two good eyes
but we still don’t see
Come round the bend
You know it’s the end
The fireman screams and
The engine just gleams
A lesson on Ego and Risk
Most traders drawn to risk management focus on the external “how to” aspect of trading, vs. the inner aspect of emotions and psychology. This is where trouble begins.
• In the school model, one’s self-esteem is tied to being right. Avoiding mistakes, especially public mistakes becomes paramount. But in trading, one can be wrong in most choices and experience regular “outlier” events in the course of trading the markets. Traders must somehow learn that they will miss out or be incorrect regularly and still have a shot at great success.
• Traders need to have a survival plan. Know when you will get out of a trade before you get in.
• If you don’t take the small loss today, your capital and trading career may not survive tomorrow.
• The most successful traders surrender their egos to not knowing the frequency or magnitude of any trend. They quiet their mind and follow their inner voice.
• Most of the world can’t keep their losses small. Professional traders and investors who’ve been around for decades are usually those who play the best defense.
Why is Jim Rogers Sceptical of India's Future?
Investor and Adventure Capitalist Jim Rogers remains deeply sceptical of India’s future. In an interview with Forbes India, he argues the country is sitting on a fiscal time bomb.The finance minister has changed the direction of India’s budget deficit by reducing the target for 2010-11 to 5.5 percent.
You really believe it will happen? Go back over the years and see their previous claims.
He has got a lot of praise for that in India. Still you are not impressed. Why?
Even if it happens, it is not being done by sound budgeting. It is from selling off the family jewels if it happens.
Don’t you think a high deficit was justified last year when the government had to spend and help the economy revive?
No. They are just trying to push the problems out into the future rather than solving the underlying problems. Do you really think the solution for a problem of too much debt and too much consumption is more debt and more consumption?
Are we not living in extraordinary times when we have to follow such flexible policies?
We are indeed. They are making the problems worse in extraordinary times which require tough measures to correct decades of abuse.
The finance minister rolled back some of the economic stimulus measures he had announced last year. Would you have preferred to see a complete rollback than a partial one?
Yes. And more.
If you were to set an agenda for the government, what would that be?
Cut spending and subsidies dramatically. Many studies have shown that countries start having serious growth problems when debt is 90 percent of GDP (gross domestic product). India is now [at] 80 percent and will be [at] 90 percent soon under this budget. The subsidies distort the economy in less productive areas.
New "Wall Street: Money Never Sleeps" Trailer Drops
Michael Douglas reprises the role of Gordon Gekko that won him an Oscar two decades ago in the sequel to the Oliver Stone directed classic, with Shia LaBeouf and Carey Mulligan on board.
Richard Rhodes' Trading Rules
If I’ve learned anything in my decades of trading, I’ve learned that the simple methods work best. Those who need to rely upon complex stochastics, linear weighted moving averages, smoothing techniques, Fibonacci numbers etc., usually find that they have so many things rolling around in their heads that they cannot make a rational decision. One technique says buy; another says sell. Another says sit tight while another says add to the trade. It sounds like a cliche, but simple methods work best.
- The first and most important rule is – in bull markets, one is supposed to be long. This may sound obvious, but how many of us have sold the first rally in every bull market, saying that the market has moved too far, too fast. I have before, and I suspect I’ll do it again at some point in the future. Thus, we’ve not enjoyed the profits that should have accrued to us for our initial bullish outlook, but have actually lost money while being short. In a bull market, one can only be long or on the sidelines. Remember, not having a position is a position.
- Buy that which is showing strength – sell that which is showing weakness. The public continues to buy when prices have fallen. The professional buys because prices have rallied. This difference may not sound logical, but buying strength works. The rule of survival is not to “buy low, sell high”, but to “buy higher and sell higher”. Furthermore, when comparing various stocks within a group, buy only the strongest and sell the weakest.
- When putting on a trade, enter it as if it has the potential to be the biggest trade of the year. Don’t enter a trade until it has been well thought out, a campaign has been devised for adding to the trade, and contingency plans set for exiting the trade.
- On minor corrections against the major trend, add to trades. In bull markets, add to the trade on minor corrections back into support levels. In bear markets, add on corrections into resistance. Use the 33-50% corrections level of the previous movement or the proper moving average as a first point in which to add.
- Be patient. If a trade is missed, wait for a correction to occur before putting the trade on. (more…)