Archives of “information edge” tag

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Book Review: Think, Act, and Invest Like Warren Buffett

  
  Education
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This is a tough book to review, because I generally respect the author, but there are many things I don’t like about the book.  Let’s start with the main one:

My friend Alice Schroeder came to speak to the Baltimore CFA Society early in November.  It was a great talk, and afterward, I took her back to the Amtrak station.  What was our main topic of conversation?  The many authors with limited or no dealings with Warren Buffett who invoke his name in order to get better sales.  I won’t name names.  I have relationships with a number of them.

I will review “The Snowball” soon.  Alice Schroeder spent around five years creating that lengthy book, and I can see why she would be upset over those that use Buffett for their own personal gain.

This book is another example of that.  Only chapters 1 and 2 have anything to do with Buffett, and there he is quoted extensively to the point where he should be listed as a secondary author, and get a cut of the royalties.  But in the next nine sections have almost nothing from Buffett; it is all the philosophy of Larry Swedroe. (more…)

Four Steps to Taking Bigger Risks

  
  Education
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1. Create an information edge so that you are ahead of the curve.

 

2. Have a thesis that you can support with data.

 

3. Assess the sources of the data.

 

4. Trade on the basis of this data against others in the marketplace.

 

The trader who understands risk will pay attention to corporate numbers and guidance and will try to analyze the relevance of these numbers to where the company stands relative to its major competitors. He is also able to differentiate between companies and does not simply trade noise or daily movement.

 

The best traders focus on the company balance sheet, earnings reports, and an assessment of the growth prospects of the company. They also compare the company on a relative valuation basis to other companies in the same space. They consider the state of the economy and any significant macroeconomic variables, such as Federal Reserve interest rate cuts, the cost of energy, and the cost of doing business, and try to assess the nature of the market at the time.

To improve your data, ask yourself: Is this a market that is trading on fundamentals, or is it trading on macroeconomic variables and market sentiment? Then try to get a handle on relevant short-term catalysts — fresh earnings news, changes in top executives, new technology, for example — that may influence the market’s perception of the value of a stock. Once you take these steps, you can try to make a calculated bet on the impact this data will have on the price of the stock. (more…)

Paul Tudor Jones Quotes

  
  Education
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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.” …

“I’m always thinking about losing money as opposed to making money. Don’t focus on making money, focus on protecting what you have” ..

The secret to being successful from a trading perspective is to have an indefatigable and an undying and unquenchable thirst for information and knowledge.

Ninety-percent of any great trader is going to be the risk control.

When trading macro, you never have a complete information set or information edge the way analysts can have when trading individual securities. It’s a hell of a lot easier to get an information edge on one stock than it is on the S&P 500. When it comes to trading macro, you cannot rely solely on fundamentals; you have to be a tape reader, which is something of a lost art form.

These days, there are many more deep intellectuals in the business, and that, coupled with the explosion of information on the Internet, creates the illusion that there is an explanation for everything and that the primary task is simply to find that explanation. As a result, technical analysis is at the bottom of the study list for many of the younger generation, particularly since the skill often requires them to close their eyes and trust the price action. The pain of gain is just too overwhelming for all of us to bear

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