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Where the Wealthy Are Putting Their Money?

The new “World Wealth Report” for 2015 was released last week fromCap Gemini and RBC Wealth Management. The focus is on the population of high net worth individuals, or HNWIs as the report calls them. The report, based on a survey of more than 5,100 wealthy people in 23 major markets, is packed with fascinating data and graphics.

You are probably familiar with some of the key themes and findings:

• Tremendous amounts of wealth have been accumulated during the past five years.

• Much of this wealth is concentrated in the top 1 percent; and a large share of that wealth is concentrated in the top 1 percent of the 1 percent.

• The very wealthy have a disproportionate impact on policy, investing and the economy.

No big surprises there. However, some of the specific data points were intriguing:

– The global HNWI population is 14.65 million, with total wealth of $56.4 trillion.

– The U.S. HNWI population is 4.68 million, with total wealth of $16.23 trillion.

– The U.S. as a region is ranked first for HNWI wealth and second for HNWI population, behind the Asia-Pacific region.

Here are a few other points worth considering:

 

Continues here: How Rich Are the Rich?

10 Trading -Wisdom Quotes

  1. Ignore hearsay and don’t let your ego get the better of you.

“I learned that an opinion isn’t worth that much. It is more important to listen to the market.”
“Most traders who fail have large egos and can’t admit that they are wrong. Even those who are willing to admit that they are wrong early in their career can’t admit it later on! Also, some traders fail because they are too worried about losing. I’m not afraid to lose. When you start being afraid to lose, you’re finished.”

Brian Gelber

  1. Timing is paramount.

“I don’t lose much on trades, because I wait for the exact right moment.”

Mark Weinstein

  1. Accept full responsibility for your actions and don’t fall prey to self-sabotage.

“Many people actually want to lose on a subconscious level.”

“The realization that you are responsible for your results is the key to successful investing. Winners
know they are responsible for their results; losers think they are not.”

Dr. Van K. Tharp (more…)

14 Meaningless Phrases -You Will Always Hear on Blue Channels

  1. The easy money has been made

When to use it: Any time a market or stock has already gone up a lot.BLUE CHANNELS IN INDIA

Why it’s smart-sounding: It implies wise, prudent caution. It implies that you bought or recommended the stock a long time ago, before the easy money was made (and are therefore smart). It suggests that there might be further upside but that there might also be future downside, because the stock is “due for a correction” (another smart-sounding meaningless phrase that you can use all the time). It does not commit you to any specific recommendation or prediction. It protects you from all possible outcomes: If the stock drops, you can say “as I said…” If the stock goes up, you can say “as I said…”

Why it’s meaningless: It’s a statement of the obvious. It’s a description of what has happened, not what will happen. It requires no special insights or powers of analysis. It tells you nothing that you don’t already know. Also, it’s not true: The money that has been made was likely in no way “easy.” Buying stocks that are rising steadily is a lot “easier” than buying stocks that the market has left for dead (because everyone thinks you’re stupid to buy stocks that no one else wants to buy.)

2.I’m cautiously optimistic. (more…)

10 Steps-Every Trader Should Take

  1. Trade in a conceptually correct manner
    Trading because Mars lines up with Venus might work occasionally, but there is no real basis for trading in this manner. Patterns you trade should make sense and have some sort of statistical edge. It does not have to be complex. In fact, simpler is better (e.g. I’m known as the trend following moron).
  2. Trade small
    Any ONE trade should NOT have a material impact on your life. ANY one loss should be viewed as an “expense”—no different from what you do in any other business. Remember, It’s a marathon, not a sprint! You’ll only be smarter in the future. If you’re in the learning phase, I can promise you you’ll look back years from now and say “what the heck was I thinking!”
  3. Ignore the news
    Ever have a stock you’re long come out with good news and then you watch in agony as it drops? Every be short a stock that comes out with bad news and then you watch in agony as the stock rises? The news is irrelevant. It’s the reaction to the news that’s relevant. What is, is.
  4. Forget about logic—Don’t worry about the “whys”
    Stocks trade on emotions–period. There often is no logic as to why a stock rises or falls. Again, what is, is.
  5. Know YOUR Methodology
    Each method will have its sweet spot. I can’t speak for every methodology, but I can tell you this about momentum based swing trading: It works well in trending markets (duh!) and doesn’t work so well in choppy markets (duh duh!).
  6. Don’t deal in mediocrity 
    Pick the best and leave the rest. Stocks should be in an obvious trend (or transition) and set up. The stock should also trade “cleanly.”
  7. Do NOTHING unless there is something to do! 
    Your performance is based on the good trades less the bad trades. By avoiding the markets in less-than-ideal conditions, you’ll have fewer bad trades hence, better performance! My favorite thing to do is to take the “can’t stand it test.” If you can’t stand NOT taking a trade because all the signs are there, then you probably should take it. Otherwise, don’t trade.
  8. Stack the odds in your favor: Market/Sector/Stock
    Your odds will greatly improve if only trade when the market, sector, and stock are all trending in the same direction.
  9. Let things work 
    Results in trading (especially momentum based swing trading) are often skewed—most of the gains come from a few big winners. Therefore, it’s crucial to catch these occasional homeruns. And, you’ll never catch any big winners if you micro manage your trades ( i.e. exit early).
  10. Money management 
    Trade small, use stops, take partial profits when offered, trail stops.

A Useful Stock Market Dictionary

I just finished reading Jason Zweig’s new book “The Devil’s Financial Dictionary” and boy is it good.  If you’ve ever been overwhelmed by all the jargon used in finance and economics then this is right up your alley.  Jason offers up a witty, brilliant and most importantly, useful collection of honest definitions.  It’s a collection of all the things most people think about these words, but are too afraid to actually say.  For instance:

ACCOUNT STATEMENT, n. A Document from a bank, brokerage, or investment firm that is designed to be incomprehensible to the CLIENTS, thereby preventing them from asking impertinent questions like “Who set my money on fire?”  You might be able to recognize your balances and recent transactions on an account statement, although that will be easier if you earn a PhD in cryptography first.

EFFICIENT MARKET HYPOTHESIS, n.  A theory in financial economics believed only by financial economists.  In theory, the market price is the best estimate at any time of what securities are worth; it immediately incorporates all the relevant information available, as rational investors dynamically update their expectations to adjust to the latest events.  In practice, however, investors either ignore new information or wildly overreact to it, regardless of how relevant it is.  Even so, that doesn’t make beating the market easy, because you must still outsmart tens of millions of other investors without incurring excess trading costs and taxes.  As behavioral economists Meir Statman puts it, “The market may be crazy, but that doesn’t make you a psychiatrist.”

FEE, n.  A tiny word with a teeny sound, which nevertheless is the single biggest determinant of success or failure for most investors.

Investors who keep fees as low as possible will, on average, earn the highest possible returns. The opposite may be true for their financial advisors, although that is still not widely understood.

(more…)

Nassim Taleb’s Risk Management Rules

Rule No. 1- Do not venture in markets and products you do not understand. You will be a sitting duck.

Rule No. 2- The large hit you will take next will not resemble the one you took last. Do not listen to the consensus as to where the risks are (that is, risks shown by VAR). What will hurt you is what you expect the least.

Rule No. 3- Believe half of what you read, none of what you hear. Never study a theory before doing your own observation and thinking. Read every piece of theoretical research you can-but stay a trader. An unguarded study of lower quantitative methods will rob you of your insight.

Rule No. 4- Beware of the nonmarket-making traders who make a steady income-they tend to blow up. Traders with frequent losses might hurt you, but they are not likely to blow you up. Long volatility traders lose money most days of the week.

Rule No. 5- The markets will follow the path to hurt the highest number of hedgers. The best hedges are those you alone put on. (more…)

A Good Trade -One Liner

  • A good trade is based on your trading plan; a bad trade is based on emotions and beliefs.
  • A good trade is based on your own personal edge; a bad trade is based on your opinion.
    • “A trader should have no opinion.  The stronger your opinion, the harder it is to get out of a losing position.”  -Paul Rotter
  • A good trade is made using your own time frame; a bad trade changes timeframe due to a loss.
  • A good trade is made in reaction to current price reality; a bad trade is made based on personal judgment.
    • Your plans can make you money because you’re not trying go predict what will happen; you’re adjusting in real time to what is happening.
    • Always trade in the direction of the longer-term trend of your time frame where the easiest money is located.
  • A good trade is made after identifying and trading with the trend; a bad trade fights the trend.
    • “The answer to the question, ‘What’s the trend?’ is the question, ‘What’s your timeframe?”  -Richard Weissman
  • A good trade is made using the trading vehicles you are an expert in; a bad trade is when you trade unfamiliar markets.
    • In the markets you will see that money flows from those who have not done their homework to those who have”

Misbehaving: The Making of Behavioral Economics-Book Review

MISBEHAVING-ASRBehavioral economics is now mainstream, at least outside of the stodgiest of economics departments. In fact, as the author writes, “This maturation of the field is so advanced that when this book is published in 2015, barring impeachment, I will be in the midst of a year serving as the president of the American Economic Association, and Robert Shiller will be my successor. The lunatics are running the asylum!” (p. 335) How behavioral economics got to this point from its humble, academically risky beginnings in the 1970s is the subject of Richard H. Thaler’s Misbehaving: The Making of Behavioral Economics (W. W. Norton, 2015).

Traditional economics studies rational agents, whom Thaler calls Econs; behavioral economics studies Humans. Econs are a construct designed to fit a theory; Humans are real people whose often irrational activities provide data (supposedly irrelevant factors) for study and hypothesis formation.

Thaler’s book, a personal history of the struggles and triumphs of behavioral economics, is also a wonderful introduction to the field. It recounts study after study that show just how predictably error-prone people are. And it explains how businesses can use these findings to keep customers happy and how governments can use them for the public good.

Looking back, Thaler suggests that the area where behavioral economics has had its greatest impact is in finance. “No one would have predicted that in 1980. In fact, it was unthinkable, because economists knew that financial markets were the most efficient of all markets, the places where arbitrage was easiest, and thus the domain in which misbehaving was least likely to appear.“ And yet these markets exhibited tell-tale anomalies, for instance the storied case of Palm and 3Com. Moreover, he notes, “It also didn’t hurt that financial markets offer the best opportunities to make money if markets are misbehaving, so a lot of intellectual resources have gone into investigating possible profitable investment strategies.” (p. 346)

The area where it has had the least impact so far is macroeconomics. In part, at least, this is due to the fact that the field “lacks the two key ingredients that contributed to the success of behavioral finance: the theories do not make easily falsifiable predictions, and the data are relatively scarce.” (p. 337)

Misbehaving is a thoroughly enjoyable read, not quite right for the beach but perfect for a rainy Sunday afternoon.

5 Steps To Becoming a Long-Term Success in Trading

1. Make Rational, Not Emotional, Decisions — Do you have a plan to enter and exit your trades? Or do you just wing it? If you have a plan, write down your rules, and make sure that you trade your plan. If you don’t, or can’t, follow your rules, hire someone who can.
2. Respect Risk — Stock Market  is not going anywhere. If you risk too much, your emotions will take over, and you will likely go broke. Always know where you are going to exit before you enter and how much you are going to risk if wrong.,
3. Don’t Judge Your Success One Trade at a Time — Losing money is part of trading. It happens to everyone. Once you learn to expect that will happen, you can plan for it and get past normal pitfalls, such as giving up on your system after a few losing trades.
4. Think like a winner — Remember that winning starts within. How you think is everything.,
5. Ask For Help — Making money on Wall Street is simple, but it is definitely not easy. Don’t let your ego get in your way of making money. Most people have a hard time asking for help. That’s just one reason why most people lose money on Stock Market . You don’t have to go it alone. Find someone you trust and are comfortable with, and don’t be afraid to ask for help.

10 Lessons for Traders & Life

1) Have a firm stop-loss point for all activities: jobs, relationships, and personal involvements. Successful people are successful because they cut their losing experiences short and ride winning experiences.
2) Diversification works well in life and markets. Multiple, non-correlated sources of fulfillment make it easier to take risks in any one facet of life.
3) In life as in markets, chance truly favors those who are prepared to benefit. Failing to plan truly is planning to fail.
4) Success in trading and life comes from knowing your edge, pressing it when you have the opportunity, and sitting back when that edge is no longer present.
5) Risks and rewards are always proportional. The latter, in life as in markets, requires prudent management of the former. (more…)