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Larry Hite Insights and Wisdom

  
  Education
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Larry Hite, who was profiled in Jack Schwager’s Market Wizards’ series, spoke recently to a group of students. An excerpt:

I believe I had to get into this business because it was simple. There are just a few questions you got to ask yourself. It’s like a checklist that you have to go through. I’m going to go through those questions, discuss them with you, and they can save you a lot of grief. I don’t know that they will make you a lot of money, but mostly they do. I mean, making money in the markets is more simple than it’s not. The trouble is that sometimes you get in the way, or if you’re working for a firm, they get in the way, because there are a lot of social implications. First I’m going to tell you a little about math. I have a guy that works for me, [who] graduated from Wharton, magna cum laude, and we were sitting around one day and we were, I don’t remember what we were doing but we had to figure out the compounded rates of return, and instead of using a calculator we were just looking at the numbers and doing it in our heads. He was young and just out of college, and he kind of felt puffed up about it. You know, it made us feel smart, which is a rare feeling for me. Then I said to him, “You know Michael, the problem with this is anybody can do this with six dollar calculator. You don’t have to be a phi beta kappa. Anybody can do this.”Larry Hite

Later he continued:

One of the great things about the market is, the markets don’t care about you. The market doesn’t care what color you are. The markets don’t care if you are short or tall. They don’t care about anything. They don’t care whether you leave or stay…I met the guy who wrote this best seller now called, Bringing Down the House, it’s about these MIT guys who beat the blackjack tables. And part of the problem, if you’re going to be a blackjack counter is that the casinos don’t like you. They actively don’t like you. And they come and tell you in rather strong things to take your business away. Well, the beautiful thing about the markets, they don’t like you, they don’t dislike you, they just don’t care. They are there everyday. You want to play, you can play. You don’t want to play, don’t play. And you can choose. You sit, there is no penalty. You know, when you stand you know…I don’t know how many of you play baseball…when your at bat if something comes through the strike[zone], if you don’t swing you still get a strike against you. But the markets are a no penalty game. You can stand there and wait. You can go home and wait. It doesn’t matter. And that’s really a terrific thing.Larry Hite

Many people lose sight of the main goal of trading the markets. Instead of worrying about making money, they worry about how much they are trading. Keep Hite’s words close, and don’t forget the main goal.

Risking

  
  Education
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Trading is all about riskcontrol !The following excerpt is from one of my favourite audiotapes ,’Risking ‘by David Viscount.I keep this on my desk to remind me each day to keep “risking.”Only a person who risks is truly free.

To laugh is to risk appearing the fool.

To weep is to risk appearing sentimental

To expose feelings is to risk exposing your true self.

To place your ideas ,your dreams ,before a crow is to risk their loss.

To live is to risk dying.To hope is to risk despair.To try is to risk failure.

But risks mist be taken ,because the greatest hazard in life is to risk nothing

The person ,who risks nothing ,does nothing ,has nothing ,and is nothing.

They may avoid suffering and sorrow ,but they cannot learn ,feel ,change ,grow ,love …live.

only a person who risks is free

Jesse Livermore Advice – How To Trade In A Bull Market

  
  Education
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The first quote is from the foreword by Jack Schwager the ensuing excerpt in my opinion is one of the most important passages in ‘Reminiscences’. Enjoy!

I did precisely the wrong thing. The cotton showed me a loss and I kept it. The wheat showed me a profit and I sold it out. Of all the speculative blunders there are few greater than trying to average a losing game. Always sell what shows you a loss and keep what shows you a profit.

In Fullerton’s there were the usual crowd. All
grades! Well, there was one old chap who was not like the others. To begin with, he was a much older man. Another thing was that he never volunteered advice and never bragged of his winnings. He was a great hand for listening very attentively to the others.
He did not seem very keen to get tips that is, he never asked the talkers what they’d heard or what they knew. But when somebody gave him one he always thanked the tipster very politely. Sometimes he thanked the tipster again when the tip turned out O.K. But if it went wrong he never whined, so that nobody could tell whether he followed it or let it slide by. It was a legend of the office that the old jigger was rich and could swing quite a line. But he wasn’t donating much to the firm in the way of commissions; at least not that anyone could see. His name was Partridge, but they nicknamed him Turkey behind his back, because he was so thick-chested and had a habit of strutting about the various rooms, with the point of his chin resting on his breast.
The customers, who were all eager to be shoved and forced into doing things so as to lay the blame for failure on others, used to go to old Partridge and tell him what some friend of a friend of an insider had advised them to do in a certain stock. They would tell him what they had not done with the tip so he would tell them what they ought to do. But whether the tip they had was to buy or to sell, the old chap’s answer was always the same.
The customer would finish the tale of his perplexity and then ask: “What do you think I ought to do?” (more…)

Technical Analysis Fact and Fiction

  
  Education
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“Technical analysis, I think, has a great deal that is right and a great deal that is mumbo jumbo…

“There is a great deal of hype attached to technical analysis by some technicians who claim that it predicts the future. Technical analysis tracks the past; it does not predict the future. You have to use your own intelligence to draw conclusions about what the past activity of some traders may say about the future activity of other traders.

“For me, technical analysis is like a thermometer. Fundamentalists who say they are not going to pay any attention to the charts are like a doctor who says he’s not going to take a patient’s temperature. But, of course, that would be sheer folly. If you are a responsible participant in the market, you always want to know where the market is — whether it is hot and excitable, or cold and stagnant. You want to know everything you can about the market to give you an edge. (more…)

Cold Truth About Emotional Investing

  
  Education
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Consider an excerpt:

WSJ: What do you mean by emotional finance?

PROF. TUCKETT: What we try to do in emotional finance is start with the fact that the future is unknowable. The key thing about uncertainty is that it inevitably generates feelings. Because it matters to you, because your money’s on the line, so to speak, you’re bound to feel emotionally engaged.

WSJ: Some people think pros are more rational than individual investors.

PROF. TAFFLER: Although most of the fund managers we interviewed saw part of their particular competitive advantage as remaining, as they described it, unemotional or rational, in practice they were just as emotional as anyone else when they started to talk about the stocks they had invested in. There were lots of examples where they referred to them almost as if they were lovers.

If you’re entering into an emotional relationship with a stock, an asset or a company that can let you down, this leads to anxiety, which is often not consciously acknowledged. But it’s there, bubbling beneath the surface.

WSJ: The fund managers told stories about their investments. What was the role you found that storytelling played in their decision making? (more…)

Technical Analysis Fact and Fiction

  
  Education
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“Technical analysis, I think, has a great deal that is right and a great deal that is mumbo jumbo…

“There is a great deal of hype attached to technical analysis by some technicians who claim that it predicts the future. Technical analysis tracks the past; it does not predict the future. You have to use your own intelligence to draw conclusions about what the past activity of some traders may say about the future activity of other traders.

“For me, technical analysis is like a thermometer. Fundamentalists who say they are not going to pay any attention to the charts are like a doctor who says he’s not going to take a patient’s temperature. But, of course, that would be sheer folly. If you are a responsible participant in the market, you always want to know where the market is — whether it is hot and excitable, or cold and stagnant. You want to know everything you can about the market to give you an edge.

“Technical analysis reflects the vote of the entire marketplace and, therefore, does pick up unusual behaviors. By definition, anything that creates a new chart pattern is something unusual. It is very important for me to study the details of price action to see if I can observe something about how everybody is voting. Studying the charts is absolutely crucial and alerts me to existing disequilibria and potential changes.”

– Bruce Kovner, Market Wizards (more…)

G. C. Selden Trading Psychology – Hunches And Gut Feelings

  
  Education
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Recently most traders probably have spent a great deal of time managing risk and emotions. I know I have. When it comes to correctly gauging and dealing with emotions it is paramount to analyze your reactions in a detached way. The best way to get objective insight is to imagine taking a step back and then ‘watching yourself.’ It’s as if you were your own mentor or trading coach. This is not an easy task. Good results require emotional detachment, a lot of experience and the ability to honestly assess the degree of trading proficiency you have attained. Ultimately it will tell you what those gut feelings you are occasionally experiencing really are worth. That’s exactly what G.C. Selden addresses at the end of his classic trading book : ‘Psychology of the Stock Market’ which was first published in 1912. Here’s an excerpt dealing with ‘hunches and gut feelings.’ Lots of additional and valuable insight for traders is provided. Enjoy!

 

An exaggerated example of “getting a notion” is seen in the so-called “hunch.” This term appears to mean, when it means anything, a sort of sudden welling up of instinct so strong as to induce the trader to follow it regardless of reason. In many cases, the “hunch” is nothing more than a strong impulse.

Almost any business man will say at times, “I have a feeling that we ought not to do this,” or “Somehow I don’t like that proposition,” without being able to explain clearly the grounds for his opposition. Likewise the “hunch” of a man who has watched the stock market for half a lifetime may not be without value. In such a case it doubtless represents an accumulation of small indications, each so trifling or so evasive that the trader cannot clearly marshal and review them even in his own mind. (more…)

Trading Wisdom – Tom Willis and Bob Jenkins

  
  Education
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Years back Tom Willis (a friend of Richard Dennis’) and Bob Jenkins, running a hedge fund, offered answers about “price” during an interview. An excerpt:
Bob Jenkins: “Everything known is reflected in the price. It makes inherent sense. I could never hope to compete with Cargill that has soybean agents scouring the globe knowing everything there is to know about soybeans and funneling the information up to Lake Minnetonka, their trading headquarters. Unless I have a friend at Cargill, I can only get this information one way: I can infer it technically. We have friends who have made millions trading fundamentally, but their problems are (a) they can rarely know as much as the commercials [i.e. Cargill]; and (b) they are limited to trading their [one market] specialty. They don’t know anything about bonds; they don’t know anything about the currencies. I don’t either, but I’ve made a lot of money trading them. Every picture’s worth a thousand words.”
Tom Willis: “They’re just numbers. Corn is a little different than bonds, but not different enough that I’d have to trade them differently-not different enough that I would have to have a different system.”
Bob Jenkins: “Some of these guys I read about have a different system for each [market]. That’s absurd. We’re trading mob psychology. We’re trading numbers. We’re not trading corn, soybeans or S&Ps.”
I hope everyone catches the nuance of Bob Jenkins’ last statement? Some great succinct language about what “it” takes. Taken from an interview 20 years ago…

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