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Markets Will Be Markets

  
  Education
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The stock market is bipolar creature, driven by sentiment and irrational expectations. One day, it is an ingenious forward-looking mechanism that anticipates and discounts future events beautifully. Another day, it is a stubborn schizophrenic that can’t see further than its nose.

Markets constantly overreact to both, identified risks and opportunities. It is in the nature of financial markets to exaggerate, to magnify. This is why they are not always discounting the future. Sometimes, they are correcting previously incorrect view. Sometimes, they just go bonkers and send prices to levels that cannot possibly be justified by any future scenario. Boys will be boys. Markets will be markets. They’ll fluctuate violently, up and down and to levels that will seem incomprehensible to many. Indexing, robo-advising and social media won’t change that. The Internet might have made people smarter; but it hasn’t made financial markets more efficient. You could complain and whine about financial markets’ irrationality or you could find a way to take advantage of it. Or don’t. It’s your choice.

If you understand people’s incentives, you are very likely to predict correctly their future behavior and sometimes even influence it. Most incentives have expiration date. What is important today, might not be as important tomorrow. This applies perfectly to life, but not always in financial markets that live in their own world. Incentives require the existence of rationality. We have already made the point that more often than not, markets are not rational, but emotional, at least in a short-term perspective. As Howard Marks eloquently puts it: (more…)

40+40+5 Super Wealthy People Have More Money Than The Poorest 3.5 Billion Combined

  
Analysis, Education
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The global economy is structured to systematically funnel wealth to the very top of the pyramid, and this centralization of global wealth is accelerating with each passing year. According to the United Nations, 85 super wealthy people have more money than the poorest 3.5 billion people on the planet combined.  And 1.2 billion of those poor people live on less than $1.25 a day.  There is something deeply, deeply broken about a system that produces these kinds of results.  Seven out of every ten people on the planet live in countries where the gap between the wealthy and the poor has increased in the last 30 years.  Despite our technological advances, somewhere around a billion people go to bed hungry every single night.  And when our fundamentally flawed financial system finally does collapse, it will be the poor that will suffer the worst.

Now, let me make one thing clear at the outset.

Big government and more socialism are not the answer to anything.  Big government and more socialism almost always result in increased oppression and increased poverty.  If you want to see where that road ultimately leads to, just look at North Korea.

What we need is a system that empowers individuals and families to work hard, be creative, build businesses and to take care of themselves.

But instead, we have a system where all power and all wealth are increasingly controlled by giant banks and giant corporations that are in turn controlled by the global elite.  The “financialization” of the global economy has turned almost everyone on the planet into “deft serfs”, and the compound interest on all of that debt enables the global elite to constantly increase their giant piles of money.

As I have written about previously, the total amount of government debt in the world has increased by about 40 percent since the last recession. (more…)

Lessons for traders

  
  Education
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  • Price goes up or down, from point A to point B, due to fundamental conditions. Hence we must understand fundamentals. However, the path price takes is not direct; it is driven by the news and emotions of the day. That’s where technical analysis shines.
  • Don’t bet big on any trade.
  • Use money management, nothing is more important to survival.
  • Fade the advisors and public; they are most often wrong while the commercials [the big guys] are most often correct.
  • Don’t let emotions run your trading game.
  • Trade what you see, not what someone tells you that you should be seeing. Forget the news; trade what you see.

Do Losers Average Losers

  
  Education
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Do losers average losers?
Averaging down is usually compounding your loss had been my experience.

Or, throwing good money after bad money.

Averaging in or out looks a lot like hedging/scalping the gamma of an options position. Counter trend if you’re short, trend following if your long.

How you amend your position with respect to some factor (be it equity, time, what-have-you) is imho the next frontier, and the most productive, to-date, endeavor in portfolio management (and little understood because people had not crafted the tools to study it).
Adding to losing positions is portfolio insurance in reverse. The points bad of portfolio insurance, are points good now in this exercise and vice versa. There is an enormous, fertile, ocean-sized domain to be explored and exploited here, and there is the opportunity to step beyond mere aphorisms in this regard.
Ralph, as I understand what he does is the worlds master of averaging positions—but not for short term trades—only trades where he knows the position will show a profit…unlike we short term traders that often buy at all time highs, etc.

Just because a trade goes against you initially, doesn’t mean the trade isn’t good. If the conditions that got me into the trade in the first place still exist and I didn’t go all in with my full package initially, I’ll add to my position. All it means is I was a little early on my initial execution, and when the trade is working, I’ll add aggressively.

Yes indeed. (more…)

50 One Liners for Traders

  
Analysis, Education
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  1. Don’t try to read into other people’s trading decisions.
  2. By all means like a stock, but don’t try to be best friends with it forever. Instead, spend time nurturing positions that are being kind to you.
  3. Beware the Beginners Cycle. The want to be right will cause you to collect courses and books and will only be a costly and frustrating exercise. The secret is elsewhere.
  4. Actually, there is no secret. It’s all in the maths.
  5. Losses when trading are inevitable, but losses should always be limited.
  6. Have a prepared trading plan so you don’t rush into bad decisions. Time spent planning will help you avoid catastrophic losses, riding the emotional roller coaster, and other unnecessary headaches.
  7. Get off your high horse. Your ego will eventually cost you dearly.
  8. Validate your strategy before you risk your capital.
  9. Don’t waste your time on other trader’s successes. The only person you’re competing against is yourself.
  10. 10. Ignore any broker that tells you to buy when there is blood in the streets. You can be sure it’s not theirs.
  11. Outsource to people who do the stuff they’re better at so you can do the stuff you’re better at.
  12. Make haste slowly. Ensure you have a validated strategy that has an edge and ensure you have a full understanding of the journey ahead of you. The markets will always be there. What won’t be there if you’re in too much of a hurry is the capital in your account.
  13. Understand positive expectancy. When you see it, you’ll get it.
  14. Ask someone you trust if you are unsure.
  15. Risk a small amount of capital on each trade.
  16. Sentiment will drive the market, or a stock, a lot further than logic ever will.
  17. Only fools claim to know the future.
  18. Don’t be a dick for a tick. Saving a few cents here and there will only cost you dollars later on.
  19. You can’t control the market. Don’t waste your time by watching every trade tick along.
  20. Find a strategy that makes sense to you.
  21. Be curious and keep a trading diary. Don’t be scared to learn something new.
  22. Explore new ideas and opportunities often.
  23. Let go of things you can’t change. Concentrate on things you can.
  24. There is no point questioning the market.
  25. The market will pay you when it’s ready. You just need to be there when it does.
  26. Find a strategy you actually enjoy following.
  27. Realize that the harder you work, the luckier you will become.
  28. Risk not thy whole wad. There is a reason why compounding is the 8th Wonder of the World.
  29. However good or bad a situation is now, it will change. Accept that positive expectancy sometimes takes time to show its hand.
  30. Realize that being right does not equate to profits.
  31. 45% of trades will tend be profitable. 45% will tend be losses. 10% will be breakeven. Your job is to make the winners count.
  32. Make mistakes, learn from them, laugh about them, and move along.
  33. Successful trading is not a sprint. Buffet didn’t earn his reputation in a single year – or decade.
  34. The only thing you can control is the amount of money you’re willing to lose on each trade.
  35. Don’t over think things. Simple works best. Complex will eventually break.
  36. Understand why your strategy makes money.
  37. If you can’t pull the trigger it’s usually because you don’t trust the strategy you’re using. Stop and re-evaluate.
  38. Trends can’t not exist.
  39. The biggest hurdle to overcome is between your ears.
  40. Don’t fear the market. It can’t actually hurt you. You can hurt you though.
  41. The object of gaining a trading education isn’t knowledge; it’s to enable action.
  42. Never move a stop backward. You’re mind is screwing with you.
  43. Rules you can’t or won’t follow are of no use to you.
  44. Your initial reaction to any adverse situation is usually wrong.
  45. Risk and volatility are not the same. Volatility can increase returns. Risk can increase losses.
  46. Think long term with regard to strategy application. Performance and trade outcomes in the short term are random.
  47. The keys to success are consistency, discipline and patience. They cannot be bought.
  48. Every stock that goes bankrupt exhibits a sustained downtrend first.
  49. Any strategy is only as good as the person using it.
  50. Take responsibility for every decision you make.

Ten ways to tell you might be sitting next to an economist

  
Analysis, Education
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1. He refuses to listen to the safety announcement because “in the long run, we’re all dead”

2. He keeps telling you that “there is no such thing” as a “complimentary refreshment service”

3. He avoids prolonged conversation with you because he has a “rational expectation” that you’re an idiot since you chose the middle seat

4. But he offers to trade his aisle seat for yours in a competitive auction with the woman sitting behind you

5. He plonks his elbow on the arm rest because space has a “higher marginal utility” for him than for you

6. When he elbows you in the ribs, he says he is simply trying to “nudge” you into better behaviour

7. When he opens the overhead locker, a copy of Thomas Piketty’s “Capital in the 21st century” falls out and hits you on the head

8. But then he uses the book as a footrest

9. He only relaxes when the plane reaches 35,000 feet because then it’s in “general equilibrium”

10. Spends all the flight scribbling Greek letters into a notebook. Turns out it’s not a series of equations; he’s part of the IMF negotiating team en route to Athens.

11. Adds an extra point to a “top 10 list” because he believes in “quantitative reasoning” 

22 Rules For Day Trading

  
  Education
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1.Time horizon is one year, not one day
2.Sangfroid wins.  Equanimity is more important than anything else
3.Make your own decisions; listen to yourself
4.When you sell a long, consider a 180 and shorting it (and vice versa)
5.Don’t buy a stock right ahead of an earnings call
6.Your performance is better when you don’t listen to underperformers.
7.Listen to analysts only for potential stock ideas- and do my own work
8.Don’t agree and don’t argue (when you differ in opinion)
9.Be humbly confident when things go your way.  Say “I got lucky this time”
10. Ego has no place here.  Trade to make money, forget pride.
11. Act without full information, while doing efficient work
12. It’s OK to make mistakes.
13. Correct mistakes early- sell on missed earnings/changed thesis, and buy back something you’ve sold if things change. 
14. Learn every day- build a new sheet – read filings- listen to calls
15. Don’t worry too much about what the crowd thinks
16. Don’t waste too much time on big Macro
17. “Sometimes you have to let the other guy make some money too”
18. Worrying is not doing
19. Don’t be a second-guesser or let them hover around you
20.  Sometimes you have to suffer first before you win.
21.  Just because the majority agrees on something doesn’t mean they’re right.
22.  Focus on The Game

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…)

Bill Gross' Advice To Traders As Stocks Crash- Stay out of the bathroom

  
Analysis, Education
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In a time when the S&P fluctuates with unprecedented velocity and investors need HFT-like reflexes to catch any momentum move, this may be the most practical advice to traders we have heard today.

In an email to Bloomberg, the former (and currently in contention for the title with Jeff Gundlach) bond king Bill Gross says to “stay out of the bathroom” as stock markets enter bear territory.

For those who ate Chipotle.coli for lunch, our condolences.

“Markets are recognizing the limited tools they now have to prop up assets AND real economies,” Gross, who manages the $1.3 billion Janus Global Unconstrained Bond Fund, said in an e-mail.
Stocks fell around the world today, with U.S. equities trading at the lowest levels since August as oil plunged below $30 a barrel. Treasuries gained as U.S. economic data did little to ease concerns that global growth is slowing.


 
“Wealth effect constructed with paper – sometimes corrugated/strong, sometimes toilet/flimsy,” Gross said in a Tweet on Friday from the Janus Capital Group Inc. account. “Stay out of the bathroom.”
Gross warned in December that markets were headed for a fall and urged urged investors to de-risk their portfolios or “look around like Wile E. Coyote wondering how far is down,” a reference to the cartoon character whose schemes to catch the bird Road Runner always backfire, often with a plunge over a cliff.
In his e-mail, Gross said that zero-percent interest rates and quantitative easing created leverage that fueled a wealth effect and propped up markets in a way that now seems unsustainable.

His conclusion: “The wealth effect is created by leverage based on QE’s and 0% rates.”

In other words, it was all an illusion.

Bad NEWS Continues For BRAZIL

  
Analysis, Education
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BRAZIL2Brazil’s economic growth continues to disappoint.

After data in December showed Brazil’s economy shrank in the third quarter of last year for the first time since 2009, the central bank’s IBC-Br index, a monthly proxy for gross domestic product, showed economic activity fell 0.3 per cent in November from a month earlier.

The market had been expecting an increase of 0.1 per cent for November.

The surprise contraction comes just two days after the central bank voted unanimously to raise its benchmark Selic rates by a larger-than-expected 50 basis points to 10.5 per cent.

The aggressive move is aimed at tackling the country’s high inflation, which hit 5.91 per cent last year. (more…)

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