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Trading Psychology Observations

  
  Education
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-From working with developing traders, I’d say that 90% don’t/can’t sustain the process of keeping a substantive journal. Among the group that does journal, well over 90% of the entries are about themselves and their P/L. I almost never see journal entries devoted to figuring out markets.

-A sizable proportion of traders who have been having problems are trading methods and patterns that used to work, but are no longer operative. The inability to change with changing markets affects traders intraday (when volume/volatility/trend patterns shift) and over longer time frames (when intermarket patterns shift).

-Some traders habitually look for tops in a rising market and bottoms in a falling one. There’s much to be said for countertrend methods, but not when the need to be right exceeds the need to make money.

-An underrated element in trading success is mental flexibility: the ability to shift views and perceptions as new data enter the marketplace. It takes a certain lack of ego to form a strong view and then modify it in the face of new evidence.

-Many traders fail because they’re focused on what the market *should* be doing, rather than on what it *is* doing. The stock market leads, not follows, economic fundamentals. Some of the best investment opportunities occur when markets are looking past news, positive or negative.

Warren Buffett on Chocolate and Candy

  
Analysis, Education
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The following video of Berkshire Hathaway’s (BRK-A) Warren Buffett, gives great insight into how he thinks before making an investment, how he created value added for the company, and increased sales substantially. No wonder why he is a billionaire and top trader and investor.

In the video, he discusses his purchase of See’s Candies, which operates over 200 retail shops in the western United States. You will also see Buffett’s sense of humor. If you have never had See’s Candies, you need to try some at your first opportunity. You will love the peanut brittle, my favorite.


 


If you think there are investment opportunities with other candy companies, here are a couple worth looking at.

Hershey (HSY), founded in 1894, is the largest manufacturer of chocolate in North America and one of the largest chocolate and candy companies in the world. Hershey’s Kisses were invented in 1901 and their chocolate chips were introduced in 1928. The stock has a P/E of 22, a forward PE of 17, with a flavorful yield of 2.8%. It sports a PEG ratio of 2.39.

Tootsie Roll Industries Inc. (TR) is known for its ever famous Tootsie Rolls. It also produces Apple Pops, Charms, Sugar Daddy, Sugar Babies, and Tootsie Roll Pops. The stock has a P/E and forward PE of 26 and sports a yield of 1.3%.

10 quotes from Warren Buffett’s letter to shareholders

  
  Education
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Warren Buffett is hunting for elephants and a bear.

You can look through the whole thing here, including as easily digested discussions of accounting as you’re ever likely to see.

But for those with limited time, here’s a look at 10 of the pithier comments.

1. On the search for new investment opportunities for Berkshire’s huge cash reserves after the acquisition of half of Heinz  HNZ -0.08% last month:

“Charlie and I have again donned our safari outfits and resumed our search for elephants.”

2. On strong performance at the GEICO insurance unit:

“The credit for GEICO’s extraordinary performance goes to Tony Nicely and his 27,000 associates. And to that cast, we should add our Gecko. Neither rain nor storm nor gloom of night can stop him; the little lizard just soldiers on, telling Americans how they can save big money by going to GEICO.com. When I count my blessings, I count GEICO twice.”

3. On company headcount:

“Berkshire’s yearend employment totaled a record 288,462, up 17,604 from last year. Our headquarters crew, however, remained unchanged at 24. No sense going crazy.” (more…)

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