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During and After the Trade

  
  Education
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1. What’s your game plan if it goes against you and threatens your survival?

2. Will you be able to get out? Did you take that into account in your workout?

3. More typically, what will you do if it goes way against you and then meanders back to give you a breakeven? Or if it immediately goes for you or aginst you?

4. Would you be willing to take a ½% profit if you get it in the first 10 minutes?

5. Did you test whether taking small opportunistic profits turns a winning system into a bad one?

6. How will unexpected cardinal events affect you like the “regrettably,” or the pre-annnouncement of something you expected for the next open? And what happens if you’re trading an individual stock and the market goes up or down a few percent during the day, or what’s the impact of a related move in oil or interest rates?

7. Are you sure that you have to monitor the trade during the day? If you’re using stops, then you probably don’t have to but then your position size would have to be reduced so much that your chances of a reasonable profit taking account of vig are close to zero. If you’re using 10% of your capital on a trade, they you’ll have to monitor it for survival. But, but, but. Are you sure you won’t be called away by phone calls, or the others?

8. Are you at equilibrium in your personal life? You’re not as talented as Tiger Woods, and you probably won’t be able to handle distressed calls for money or leaks on the home front. Are you sure that if you’re losing you won’t get hit on the head with a 7-iron, or berated until you have to give up at the worst possible time?

9. After the trade did you learn anything from the trade?

10. Are you organized sufficiently to have a record of all your trades for your accounting and learning?

11. Should you modify your existing systems based on it?

12. How does recency and frequency and value affect your future?

13. Did you fit your after activities to your mojo?

14. If you made a good profit, did you take some capital out of the fray for a rainy day?

15. Have you learned to say “fair” whenevever anyone asks you how you’re doing and are you sure that you don’t spend a fortune after a good trade, and dissipate your profits with non-economic activities?

16. Is there a better use for your time than monitoring the ticks or the market every minute of the day if you do, and if you don’t, do those who do so and have much faster and better equipment than you have an insurmountable advantage against you?

Italy’s interest payments on debt subject to great uncertainty – Bank of Italy

  
Analysis, Economy, Education
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Did he really say that?  Crikey.

EUR/USD slips back down through 1.2100, presently 1.2095.

EDIT: Headline misleading.   Bank of Italy Director Salvatore Rossi, speaking before Senate hearing, said Italy’s interest payments on debt were subject to great uncertainty and that a 1% rise or fall in interest rates on debt maturing from 2011 would cut or hike the 2012 deficit by 0.5 percentage points.  Ahhh.

The Zurich Axioms – Forecasts Predictions And Prophets

  
  Education
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Here’s what Max Gunther, author of ‘The Zurich Axioms’ has to say:

The Zurich Axioms: ‘On Forecasts’, page 62:

Human behavior cannot be predicted. Distrust anyone who claims to know the future, however dimly.

‘Speculative Strategy’:
The Fourth Axiom tells you not to build your speculative program on a basis of forecasts, because it won’t work. Disregard all prognostications. In the world of money, which is a world shaped by human behavior, nobody has the foggiest notion of what will happen in the future. Mark that word. Nobody.
Of course, we all wonder what will happen, and we all worry about it. But to seek escape from that worry by leaning on predictions is a formula for poverty. The successful speculator bases no moves on what supposedly will happen but reacts instead to what does happen. (more…)

Forecasts Predictions And Prophets

  
  Education
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Here’s what Max Gunther, author of ‘The Zurich Axioms’ has to say:

The Zurich Axioms: ‘On Forecasts’, page 62:

Human behavior cannot be predicted. Distrust anyone who claims to know the future, however dimly.

‘Speculative Strategy’:
The Fourth Axiom tells you not to build your speculative program on a basis of forecasts, because it won’t work. Disregard all prognostications. In the world of money, which is a world shaped by human behavior, nobody has the foggiest notion of what will happen in the future. Mark that word. Nobody.
Of course, we all wonder what will happen, and we all worry about it. But to seek escape from that worry by leaning on predictions is a formula for poverty. The successful speculator bases no moves on what supposedly will happen but reacts instead to what does happen.
Design your speculative program on the basis of quick reactions to events that you can actually see developing in the present. Naturally, in selecting an investment and committing money to it, you harbor the hope that its future will be bright. The hope is presumably based on careful study and hard thinking. Your act of committing dollars to the venture is itself a prediction of sorts. You are saying, “I have reason to hope this will succeed.” But don’t let that harden into an oracular pronouncement: “It is bound to succeed because interest rates will come down.” Never, never lose sight of the possibility that you have made a bad bet.
If the speculation does succeed and you find yourself climbing toward a planned ending position, fine, stay with it. If it turns sour despite what all the prophets have promised, remember the Third Axiom. Get out.

My Checklist :During and After the Trade

  
  Education
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checklist-1. What’s your game plan if it goes against you and threatens your survival?

2. Will you be able to get out? Did you take that into account in your workout?

3. More typically, what will you do if it goes way against you and then meanders back to give you a breakeven? Or if it immediately goes for you or aginst you?

4. Would you be willing to take a ½% profit if you get it in the first 10 minutes?

5. Did you test whether taking small opportunistic profits turns a winning system into a bad one?

6. How will unexpected cardinal events affect you like the “regrettably,” or the pre-annnouncement of something you expected for the next open? And what happens if you’re trading an individual stock and the market goes up or down a few percent during the day, or what’s the impact of a related move in oil or interest rates?

7. Are you sure that you have to monitor the trade during the day? If you’re using stops, then you probably don’t have to but then your position size would have to be reduced so much that your chances of a reasonable profit taking account of vig are close to zero. If you’re using 10% of your capital on a trade, they you’ll have to monitor it for survival. But, but, but. Are you sure you won’t be called away by phone calls, or the others? (more…)

Peter Lynch

  
  Education
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Probably you have heard of Peter Lynch. But did you know that in 13 years, from 1977 to
1990, the Fidelity Magellan Fund he managed grew from $20m to a whopping $14b?!
One of his famous buy, Subaru, was already up twentyfold when he bought the stock and he made sevenfold after that.

Quotes from Peter are as follows:
“Go for a business that any idiot can run – because sooner or later, any idiot is probably going to run it.”

“If you stay half-alert, you can pick the spectacular performers right from your place of business or out of the neighborhood shopping mall, and long before Wall Street discovers them.”

“Investing without research is like playing stud poker and never looking at the cards.”

“Absent a lot of surprises, stocks are relatively predictable over twenty years. As to whether they’re going to be higher or lower in two to three years, you might as well flip a coin to decide.” (more…)

Speculation In This Sector Will End "Very Badly," Canada's Warren Buffett Says

  
Analysis, Education
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Whether it’s subprime auto lending, Janet Yellen’s “stretched” biotech sector, or corporate credit, bubbles abound in today’s fragile market and like Mark Cuban, Prem Watsa thinks the valuations investors are placing on private tech companies are simply ludicrous. But the insanity isn’t confined to private companies, Canada’s Warren Buffett says. “Speculation” is rampant in publicly traded shares as well. 

From Fairfax Financial’s shareholder letter:  

I am always amazed at the speculation that can take place in the stock market, as shown in the table below, and how long it can last:

  (more…)

ALERT :RBI Tax to dry FII Tap ?

  
Analysis, Economy, Education
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taxForeign investors funneled more than $15 billion to Indian equities in 2009, sending stocks up more than 75% and strengthening the rupee . With expected positive growth rates for the year and higher interest rates differentials that favor emerging markets, investors are looking to India as a good place to stash their wealth.

The Reserve Bank of India (RBI) has already taken the necessary precautions to stave off a potential asset bubble forming in India’s stock and real estate markets. India’s officials are welcoming the fund inflows with open arms, but Finance Minister Pranab Mukherjee says monetary tools will be implemented if inflows become disruptive to the economy.

RBI could stem inflows by:

We are expecting very soon by Next month or First week Jan’10

  • Imposing taxes on inflows; this is considered to be the most likely tactic the government would take, especially when it comes to inflows that could lead to a housing bubble
  • Auctioning quotas for foreign credit to increase the cost of raising funds
  • Using market intervention bonds and raising cash reserve ratios

Fear & Greed

  
  Education
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Most of us make the same mistake with our money over and over again: We buy high out of greed and sell low out of fear, despite knowing on an intellectual level that it is a very bad idea.

Think about this pattern for a minute. At the top of the market we can’t buy fast enough. About three years later at the bottom, we can’t sell fast enough. And we repeat that over and over until we’re broke. No wonder most people are unsatisfied with their investing experience.

No one is sure how this will turn out. But with interest rates again near record lows (meaning bond prices are near record highs), you could end up losing money in that bond fund you bought for the purpose of making sure you don’t lose money.

It makes far more sense to ignore what the crowd is doing and base your investment decisions on what you need to reach your goals, then stick with the plan despite the fear or greed you may feel. To do otherwise would be following a pattern that has proven to be extraordinarily painful.

12 Points about About Investing from Howard Marks

  
  Education
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MUST READ1. “The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological.” Psychological mistakes are at the same time the biggest source of danger for an investor and the biggest source of opportunity when other people succumb to those mistakes.  If you can keep your head about you when everyone else is losing theirs, you can profit in ways which beat the market. Howard Marks: “The absolute best buying opportunities come when asset holders are forced to sell.”

2.  “Rule No. 1:  Most things will prove to be cyclical. – Rule No. 2:  Some of the greatest opportunities for gain and loss come when other people forget Rule No. 1.” Nothing good or bad goes on forever.  And yet people extrapolate sometimes as if a phenomenon will go on indefinitely. “If something cannot go on forever it will eventually stop” famously said Herbert Stein. Situations in which mean reversion does not happen are rare enough as to make a mean reversion assumption a consistent friend to the investor.

3.  “We don’t know what lies ahead in terms of the macro future. Few people if any know more than the consensus about what’s going to happen to the economy, interest rates and market aggregates. Thus, the investor’s time is better spent trying to gain a knowledge advantage regarding ‘the knowable’: industries, companies and securities. The more micro your focus, the great the likelihood you can learn things others don’t.”  Focusing on the simplest possible system (an individual company) is the greatest opportunity for an investor since a company is understandable in a way which may reveal a mispriced bet. Howard Marks puts it simply:  “We don’t make macro bets.”

4.  “We can make excellent investment decisions on the basis of present observations, with no need to make guesses about the future.”  This video has excellent material from Marks on why trying to make macroeconomic predictions is bound to fail:   https://www.youtube.com/watch?v=2It1fzcBoJU  If great investors like Marks, Buffett, Munger, Lynch etc. can’t make macro forecasts, do you think economists can? If you do believe they can, “Where are the economists’ yachts?”  Howard Marks notes that anyone can be right “once in a row” especially when the range of possible outcomes is small.

5.  “There are two essential ingredients for profit in a declining market: you have to have a view on intrinsic value, and you have to hold that view strongly enough to be able to hang in and buy even as price declines suggest that you’re wrong. Oh yes, there’s a third; you have to be right.”  Being a contrarian for its own sake is suicidal. Not being a contrarian at all means by definition you can’t outperform the market. Being genuinely contrarian means you are going to be uncomfortable sometimes. Howard Marks adds:  “To achieve superior investment results, your insight into value has to be superior. Thus you must learn things others don’t, see things differently or do a better job of analyzing them – ideally all three.” (more…)

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