Archives of “Investment” tag

rss

Why it would be a mistake to trade like George Soros.

  
  Education
#  #  #  #  #

Soros’ prowess in the markets is legendary, so much so that deconstructing his process in order to learn the secret to his success has become a cottage industry in financial circles.  In the world of  “Market Wizards,” Soros is Saruman.  Tolkien baby…look it up.

However, in the Times’ article, his son Robert demystified the source of the Elder Soros’ alchemy in such a simple and definitive way that it may drive market historians to acts of self-immolation.

Apparently It all comes down to a pain.  In the back to be specific.

According to his son, Robert, Soros’s trading was always influenced by more than reflexivity. “My father will sit down and give you theories to explain why he does this or that”, he once said, “but I remember seeing it as a kid and thinking, ‘Jesus Christ, at least half of this is bullshit’.

“I mean, you know [that] the reason he changes his position on the market or whatever is because his back starts killing him. It has nothing to do with reason. He literally goes into a spasm and it’s this early warning sign.”

Soros has admitted to relying greatly on “animal instincts”, saying the onset of acute pain was often “a signal that there was something wrong in my portfolio”.

His decisions, then, “are really made using a combination of theory and instinct”.

That’s right.  Though you and I did our damnedest to read between the lines and glean some sort of insight from The Alchemy of Finance in the 80′s and again with Soros on Soros in the 90′s, it was all for naught.  Now we know the true source of this modern-day Tim The Enchanter’s genius.  Monty Python baby…..look it up.

This revelation might tempt some of you to adopt the same market style as Mr. Soros, a view I wholeheartedly endorse, as long as the profile fits.  It’s easy to see if a spasm based methodology is right for you by answering a few simple questions.

  1. Are you a passionate student of the market?
  2. Are you open to considering a wide range of investment themes?
  3. Have you ever booked a $1 billion dollar single-day profit by breaking a sovereign bank?
  4. Did you marry a 41-year junior third wife on your $22 million dollar Westchester estate while Paul Tudor Jones and Julian Robertson looked on?
  5. Have you booked over $40 billion in cumulative profits?
  6. Do you have a full head of hair well into your eighth decade on this planet?

(more…)

Diagnosing trading problems.

  
  Education
#  #  #  #  #  #  #  #  #

1) Problems of training and experience – Many traders put their money at risk well before they have developed their own trading styles based on the identification of an objective edge in the marketplace. They are not emotionally prepared to handle risk and reward, and they are not sufficiently steeped in markets to separate randomness from meaningful market patterns. They are like beginning golfers who decide to enter a competitive tournament. Their frustrations are the result of lack of preparation and experience. The answer to these problems is to develop a training program that helps you develop confidence and competence in identifying meaningful market patterns and acting upon those. Online trading rooms, where you can observe experienced traders apply their skills, are helpful for this purpose.
2) Problems of changing markets – When traders have had consistent success, but suddenly lose money with consistency, a reasonable hypothesis is that markets have changed and what once was an edge no longer is profitable. This happened to many momentum traders after the late 1990s bull market, and it also has been the case for many scalpers after volatility came out of the stock indices. Here the challenge is to remake one’s trading, either by retaining the core strategy and seeking other markets with opportunity or by finding new strategies for one’s market. The answer to these problems is to reduce your trading size and re-enter a learning curve to become acquainted with new markets and methods. Figuring out how you learned the markets initially will help you identify steps you need to take to relearn new patterns. 
3) Situational emotional problems – These are emotional stresses that are recent in origin and that interfere with decision making and performance. Some of these stresses might pertain to trading, such as frustration after a slump or loss. Some might stem from one’s personal life, as in a relationship breakup or increased financial pressures due to a new home or child. Very often these problems create performance anxieties by putting the making of money ahead of the placing of good trades. The answer to these problems is to seek out short-term counseling to help you gain perspective on the problems and cope with them effectively.  (more…)

Taleb reveals unsettling truths

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

How fragile we are. Five years on from the Lehman Brothers collapse, political and regulatory errors have made the world’s financial system even more fragile.

This alarming line of thought comes from Nassim Nicholas Taleb, best known for The Black Swan, which explained markets’ difficulties in pricing extreme events for which they had no precedent.

 Mr Taleb, who spoke to me in London last week, divides opinion. For some he is a genius, for others a charlatan. What seems clear, however, is that his gloriously charismatic act and polymath choice of imagery, drawn from philosophy, mathematics and the Classics, can get in the way of underlying ideas which are not in fact far-fetched. Indeed they contain a hard kernel of commonsense truth.

Here, then, is an attempt to render Mr Taleb’s poetic arguments in prose.  (more…)

Quotes From – The Battle of Investment Survival, by Gerald M Loeb

  
  Education
#  #  #  #  #  #

LoebHere are some interesting quotes from The Battle of Investment Survival, by Gerald M Loeb, Simon and Schuster, 1957 (14th printing).

“There are some rules that hold, and my first is to buy only something that is quoted daily and can be bought and sold in an action market daily. The greater the volume of trading and the broader the market in a particular security, the closer to a fair price at a given moment that security is likely to be.”

“In my opinion, the primary factor in securing market profits lies in sensing the general trend. Are we in a deflation or inflation period? If the former, I would hardly bother to analyze most equities.”

“In short, in my opinion everything of an analytical nature covering specific securities should be persistently linked to past market appraisals and set up for use solely to determine future market possibilities.”

“Any program which involves complete investment of all capital at all times is certain to fail unless the amount of it is extremely small.”

“All this suggests the question – are we learning to trade for the quick turn or to invest for the long pull? We are investing for appreciation, and the length of time one holds a position has noting to do with it. I lean towards rather short turns for many reasons. To begin with, experience is gained much more rapidly that way. Short-term investing once mastered has very much more the elements of dependable business than the windfalls or calamities of the long pull.”

“Obviously, our ideas will sound wrong to the most people. Any investment policy followed by all naturally defeats itself. Thus the first step for the individual trying to secure or preserve capital is to detach himself from the crowd.”

Bitter Truth :Why Traders Lose Money in Market

  
  Education
#  #  #  #  #  #  #  #
  1. Traders miss a trade setup, then take it late in the move. Chasing a trade is rarely a good decision. Buy right or sit tight.
  2. Traders buy a dip before it really reaches a good risk/reward setup.
  3. Traders buy a dip before there is any sign of a reversal.
  4. Traders wait for the perfect moment and end up with no setups.
  5. Traders hold onto opinions after price action has proven them wrong.
  6. Traders are stopped out of ordinary price action because their stop losses are too close, and their trades aren’t given enough room to breathe.
  7. Traders perpetually short uptrends and buy downtrends, missing the easy money and creating losses.
  8. Those that spend more time trading than studying will have their money taken by traders devoted to learning.
  9. Caring more about personal opinions than price action is the best way to donate money to the market.
  10. Holding onto a losing trade because you don’t want to take the initial loss, is a great way to turn a small loss into a big one.

Links For Traders

  
Education, LINKS
#  #  #  #  #

Interesting reads:

10 Bad Habits of Trader

  
  Education
#  #  #  #  #  #  #  #  #
  1. They  trade too much. The edge that small traders have over institutions, is that they can pick trades carefully and only trade the best trends and entries. The less they trade, the more money they make, because being picky gives traders an edge.
  2. Unprofitable traders tend to be trend fighters, always wanting to try to call tops and bottoms. They eventually will be right, but their account will likely be too small by then to really profit from the reversal. Money is made by going with the flow of the river, not paddling upstream against it.
  3. Taking small profits quickly and letting losing trades run in the hopes of a bounce back, is a sure path to failure. Profitable traders understand their risk/reward ratio; big wins and small losses. Being quick to take profits while allowing losses to grow, is a sure way to blow up your trading account.
  4. Wanting to be right more than wanting to make money will be a very expensive lesson. A trader who doesn’t  want to take losses will most certainly balk at reversing his position because it signifies personal failure. A profitable trader is not afraid to get on the right side of the market to start making money.
  5. Unprofitable traders trade too big, and risk too much to make too little. The biggest key to profitability is to avoid big losses. Your wins can be as big as you like, but the losses must be limited.
  6. Unprofitable traders watch BLUE CHANNELS for trading ideas.
  7. Unprofitable traders want stock picks, while profitable traders want to develop trading plans and systems.
  8. Unprofitable traders think trading is about being right. Profitable traders know that profitability is about admitting you are wrong quickly, and being right as long as possible.
  9. Unprofitable traders don’t do their homework because they think there is a quick and easy route to trading success.
  10. Unprofitable traders #1 question is how much they can make if they are right, while the profitable traders #1 concern is how much they can lose if wrong.

The Alpha Masters-Maneet Ahuja :Book Review

  
  Education
#  #  #  #  #  #  #

Maneet Ahuja’s 2012 book The Alpha Masters: Unlocking the Genius of the World’s Top Hedge Fundsis now available in paperback. Somehow I missed the book when it first appeared, so in the spirit of “better late than never” I decided to write a few words about it here.

Most of the characters in this book are familiar: Ray Dalio of Bridgewater Associates, Tim Wong and Pierre Lagrange of Man Group/AHL, John Paulson of Paulson & Co., Marc Lasry and Sonia Gardner of Avenue Capital Group, David Tepper of Appaloosa Management, William A. Ackman of Pershing Square Capital Management, Daniel Loeb of Third Point, James Chanos of Kynikos Associates, and Boaz Weinstein of Saba Capital Management. Adding to the luminaries, Mohammed El-Erian wrote the foreword and Myron Scholes the afterword.

Many of their stories are familiar as well. So why does this book remain a compelling read?

It introduces us to a very bright, hardworking, resilient group of people. We see how their research leads them to formulate hypotheses, how they translate these hypotheses into market positions, how they push their advantage, and how they bounce back when their hypotheses don’t pan out.

(more…)

Two lessons from the road

  
  Education
#  #  #  #  #  #

– It only takes a small slip-up to create big negative effects. Conversely, the road to success in many of life’s ventures seems to be more incremental. Think of the engineering behind cars, space shuttles etc. One small error can lead to total disaster, but for everything to work, so many things have to be ‘right’. A related pattern is the  carry trade in the currency market, where returns are incremental as the high yielding currencies slowly appreciate, but when we witness episodes of carry trade unwinding, things are not nearly as orderly.

– Missing my junction would be less of a problem if I was less tired and fatigued, because I would feel less downhearted at having to do the additional driving. However, it is when we have energy and are wide awake that we are least likely to miss our junctions, and we are more likely to miss them when we least want to. This reminds me of insurance not working when it comes to claiming, of correlations heading to one in times of crisis, and of markets being flush with liquidity, only for it to dry up right when it counts.

Consider Factors That Will Affect Market Participants’ Perceptions Even if You Don’t Believe in It

  
  Education
#  #  #  #  #  #  #  #  #
  • I have always been a discretionary trader with my analysis based on fundamentals…. Whatever kind of a trader you are, you have to be aware of perceptions in the market place, that can influence the participants’ behavior. If a lot of people are charting and they think that a certain level is a key level for whatever reason – lunar, astrological, who the hell knows – then you have to be aware of it. Because it is going to cause a certain number of market participants to react and you have to be aware of it. You have to understand how that is going to affect your position.
  • You have to be aware of all these technical techniques, such as momentum, because a lot of market participants use them and so they can affect the market.
Go to top