Archives of “Financial economics” tag

rss

Warren Buffett – The World's Greatest Money Maker-Video

  
Education, Video
#  #  #  #  #  #

If you invest in the stock market you’re almost 100% certain to have heard of Warren Buffett. Indeed, you’ve probably read books about him, or you might have read his annual shareholder letter, or even been to the spectacle that is the Berkshire Hathaway annual shareholders meeting.

Now’s your chance to watch an interesting documentary that offers an intimate look at the life of Warren Buffett. The documentary offers an eye opening view of how he runs the company (complete with a tour of his office), the annual shareholders meeting of Berkshire Hathaway, and a peak at his many eccentricities.

Of course the film also reviews how he made his money, how he operates, how he came to operate in the way he does, and how he thinks about his wealth which is in the tens of billions of dollars.

Buffett on Stock Prices

  
  Education
#  #  #  #  #  #  #

Its early in this potential correction, but let me remind you of Buffett’s interesting (1997) comments:

“If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef?

Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices?

These questions, of course, answer themselves. But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period?

Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the “hamburgers” they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.”

–Warren Buffett, chairman’s letter, Berkshire Hathaway annual report, 1997 

 
Its worth thinking about, regardless of whether the recent investor nervousness turns into something more significant . . .

The Bible of Technical Analysis Edwards & Magee- Some Things Never Change

  
  Education
#  #  #  #  #  #  #  #  #  #

“It has often been pointed out that any of several different plans of operation, if followed consistently over a number of years, would have produced consistently a net gain on market operations. The fact is, however, that many traders, having not set up a basic strategy and having no sound philosophy of what the market is doing and why, are at the mercy of every panic, boom, rumor, tip, in fact, of every wind that blows. And since the market, by its very nature, is a meeting place of conflicting and competing forces, they are constantly torn by worry, uncertainty, and doubt. As a result, they often drop their good holdings for a loss on a sudden dip or shakeout; they can be scared out of their short commitments by a wave of optimistic news; they spend their days picking up gossip, passing on rumors, trying to confirm their beliefs or alleviate their fears; and they spend their nights weighing and balancing, checking and questioning, in a welter of bright hopes and dark fears.

Furthermore, a trader of this type is in continual danger of getting caught in a situation that may be truly ruinous. Since he has no fixed guides or danger points to tell him when a commitment has gone bad and it is time to get out with a small loss, he is prone to let stocks run entirely past the red light, hoping that the adverse move will soon be over, and there will be a ‘chance to get out even,’ a chance that often never comes. And, even should stocks be moving in the right direction and showing him a profit, he is not in a much happier position, since he has no guide as to the point at which to take profits. The result is he is likely to get out too soon and lose most of his possible gain, or overstay the market and lose part of the expected profits. (more…)

STOP TRADING until you can answer YES to all QUESTIONS

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #

Managing Risk as a trader is the most important consideration and if you answer NO to any of the following questions, then STOP TRADING until you can answer YES to all of them:

  • Do you have a written trading plan that deals with risk management?
  • Have you calculated the risk that you are comfortable with in every trade?
  • Will you not place a trade, even though you have a healthy balance in your trading account, when you know that your risk exposure goes beyond the risk outlined in your trading plan?
  • Have you identified what your maximum position size will be?
  • Do you have a stop in place every time you trade?
  • Are you aware that risk management is not just about where you place your stop?
  • Will you be able to stick to your risk management rules under ALL trading conditions?

There are many ways to manage your risk but until you have a risk management process written into your trading plan and you stick to these risk management rules on EVERY occasion, then you have more work to do until you are on your way to being a successful trader. (more…)

Bruce Lee on Stock Trading

  
  Education
#  #  #  #  #  #  #  #  #

If Bruce Lee was a trader I believe this would be his advice:

If you let the market show you the way you will win.

Do not trade your opinions about what the market will do next,  instead always ask the questions:

What is the chart saying? Where is support and resistance?

Is the market trending or range bound? At what price level will I know that it has changed?

Where is all the capital flowing? What keeps going up day after day?

If I enter a trade at what price level will I know I was wrong?

Can I quickly admit I am wrong about a trade and move on to the next one?

Water is so versatile it can be ice in the winter and steam in extreme heat. Traders do well to be a bull in a bull market and a bear in a bear market.

Water can wear through a rock if it is a strong river.  You can win in the markets if you keep trading the right method over and over again.

Water takes the form of whatever you put water into. Traders should trade for the market conditions that they find themselves in.

Water can only be reduced to its core elements hydrogen and oxygen but it can not be truly destroyed. If you only risk 1% per trade your account can experience a draw down in capital but it to can not be destroyed.

George Soros quotes

  
  Education
#  #  #  #  #  #  #  #  #
The Hungarian-born financier will therefore no longer be able to move markets. But many of his aphorisms and apothegms will long continue to apply. Here are some of the best.
QuoteWhen I see a bubble forming I rush in to buy, adding fuel to the fire. That is not irrational.”
QuoteWell, you know, I was a human being before I became a businessman.”
 
Markets are designed to allow individuals to look after their private needs and to pursue profit. It’s really a great invention and I wouldn’t under-estimate the value of that, but they’re not designed to take care of social needs.”
QuoteThe financial markets generally are unpredictable. So that one has to have different scenarios… The idea that you can actually predict what’s going to happen contradicts my way of looking at the market.”
 

(more…)

The Legends Are Abandoning the Markets

  
Analysis, Education
#  #  #  #  #  #  #  #  #  #  #

The legends are abandoning the markets. 

Stanley Druckenmiller founded his hedge fund Duquesne Capital in 1981. From 1986 onward he maintained average annual returns of 30%. He also managed George Soros’ Quantum Fund from 1988-2000. During that latter period he famously facilitated Soros’ “breaking of the Bank of England” trade: the legendary trade which netted over $1 billion in a single day. 

Druckenmiller closed Duquesne Capital in 2010, stating that he was no longer able to meet his investment “standard[s]” in the post-2008 climate (he made money in 2008 before the Fed began to alter the risk landscape). 

Druckenmiller’s key strength has always been macro-economic forecasting. That he would feel the capital markets were not offering him the opportunities he needed says a lot. 

Seth Klarman is another investment legend who is returning capital to clients. Widely considered to be the Warren Buffett of his generation, Klarman recently cited a lack of “investment opportunities” as the cause for his decision to downsize his legendary Baupost Group hedge funds. 

Other legends or market outperformers who have returned capital to investors or closed their funds to outside investors are Carl Icahn and Michael Karsch. Indeed, even value legend Warren Buffett is sitting on the single largest amount of cash in the history of his 50+ year career as an investor, stating that stocks are “fully valued” at current levels (Buffett largely does not believe in shorting the market, so his decision to be in cash is a strong indicator of opportunities). (more…)

Top 17 Quotes from Buffett's Letter

  
  Education
#  #  #  #  #  #  #  #  #  #
  1. “I needed no unusual knowledge or intelligence to conclude that the investment had no downside and potentially had substantial upside.”
  2. “You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well.”
  3. “Keep things simple and don’t swing for the fences.”
  4. “When promised quick profits, respond with a quick ‘no.'”
  5. “If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility.” 
  6. “Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard.”
  7. “Forming macro opinions or listening to the macro or market predictions of others is a waste of time.” 
  8. “It should be an enormous advantage for investors in stocks to have those wildly fluctuating valuations placed on their holdings — and for some investors, it is.”
  9. “Owners of stocks…too often let the capricious and irrational behavior of their fellow owners cause them to behave irrationally as well.” 
  10. “In the 54 years (Charlie Munger and I) have worked together, we have never forgone an attractive purchase because of the macro or political environment, or the views of other people. In fact, these subjects never come up when we make decisions.” (more…)

The Difference Between A Good And A Bad Trader: What Brain Imaging Reveals

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #

The age old question: what is the difference between a good trader and a bad trader… aside from the P&L at the end of the day of course.

While luck has always been a major component of the equation, figuring out just what makes one trader successful, while another blows all his funds on a trade gone horribly bad has always been the holy grail of behavioral finance. Because if one can isolate what makes a good trader “ticks, that something can then be bottled, packaged and resold at a massive markup (and thus, another good trade) in the process making everyone the functional equivalent of Warren Buffett.

Or so the myth goes. Alas, the distinction between the world’s only two types of traders has been a very vague one.

Until now. (more…)

Go to top