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The Golden Rule

  
  Education
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10% of your trades will account for 90% of your profits

1 or 2 months will account for most of your annual profits

1 or 2 days will account for most of your monthly profits

Good investors and traders know that very well. They are ready to press extra hard when realize that they might have a home run in play. They are ready to disappear in 60 seconds when things don’t go as planned.

Dennis Gartman knows that The Golden Rule is what distinguishes smart from not so smart money:

We’ve learned one good lesson from that one trade, and that is that we only get one or two or perhaps three good ideas each year that work. So, when they work, it is our duty to beat them into submission; to add to them when we can; to embrace them as they insulate themselves from random market noise, and to use them to make up for the myriad numbers of truly idiotic ideas  we are capable of coming up with, keeping those losses small.

Sometimes one good opportunity could turn your life upside down.

Cut your losses short, no questions asked

  
  Education
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The majority of unskilled investors stubbornly hold onto their losses when the losses are small and reasonable. They could get out cheaply, but being emotionally involved and human, they keep waiting and hoping until their loss gets much bigger and costs them dearly.”

William O’Neil

The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading… I know this will sound like a cliche, but the single most important reason that people lose money in the financial markets is that they don’t cut their losses short.”

Victor Sperandeo

Some people say, “I can’t sell that stock because I’d be taking a loss.” If the stock is below the price you paid for it, selling doesn’t give you a loss; you already have it.

William O’Neil

When I became a winner I went from ‘I figured it out, therefore it can’t be wrong’ to ‘I figured it out, but if I’m wrong, I’m getting the hell out, because I want to save my money and go on to the next trade.’”

Marty Schwartz

2009…Heads or Tails?

  
  Education
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headsortails

Adam Smith (1723 – 1790) in “The Money Game” wrote:
“Prices have no memory and yesterday has nothing to do with tomorrow. Every day starts out fifty-fifty!”
If the above statement is to be trusted, then you could just take the 50 – 50 odds, expand their daily time horizon to a yearly one, and decide whether or not to “stay in the stock market game” in 2009!
Decide on just a flip of a coin?
Given the past year’s negative returns, what does this “flip” imply for the investors’ chances this coming year?
Well, that is a matter of asking the question the right way!
If you assume that the years are flipping randomly, and that there is no bias for any year, then you could ask if it is fair enough to assume that flipping through a calendar is otherwise the same as just flipping a coin?
Let’s assume that you were just flipping a coin. Then, YES …
The odds of one flip would always be 50 – 50!
Indeed, you might be led to start questioning about how fair the coin actually would be! In this case, you really should look back and base your expectations on historical econometric analysis and try to establish how fair the coin would be!
But if you are guessing that some things do look like a flip of a coin, shouldn’t you also assume that just because we had a negative year, we’re now going to get a positive one?
Who knows … Investments based on that kind of speculation might actually end up yielding a positive result!
But the odds are still only 50 – 50!
On the other hand …
I do know that …
I will get a much better than 50 -50 chance!

Cut your losses short, no questions asked

  
  Education
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The majority of unskilled investors stubbornly hold onto their losses when the losses are small and reasonable. They could get out cheaply, but being emotionally involved and human, they keep waiting and hoping until their loss gets much bigger and costs them dearly.”

William O’Neil

The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading… I know this will sound like a cliche, but the single most important reason that people lose money in the financial markets is that they don’t cut their losses short.”

Victor Sperandeo

Some people say, “I can’t sell that stock because I’d be taking a loss.” If the stock is below the price you paid for it, selling doesn’t give you a loss; you already have it.

William O’Neil

When I became a winner I went from ‘I figured it out, therefore it can’t be wrong’ to ‘I figured it out, but if I’m wrong, I’m getting the hell out, because I want to save my money and go on to the next trade.’”

Marty Schwartz

Sun Tzu’s Art Of War For Traders And Investors

  
  Education
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Nice passage I just came across going through various trading books this weekend. The following quote is from Dean Lundell: “Sun Tzu’s Art Of War For Traders And Investors”. It is an important reminder to pay attention when to deploy capital, when to be aggressive and when it is best to do nothing. Enjoy.

Sun Tzu finishes this lesson by reminding us to act only when it is to our benefit. A kingdom once destroyed cannot be brought back, nor can the dead be restored to life. This is the way to keep a country at peace and an army intact.

It is often said that the business of a trader is to stay in business. If you are frivolous in your methods, your equity will soon be gone and you will be out of business. So act when you see an opportunity and be content to stand aside when you do not.

The next $22 billion ceo

  
Analysis, Education
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Based on what the big investors (like Microsoft) have been willing to pay to own a piece of the company, Facebook now has a valuation of about $23 billion.

 
Obviously, when it goes ipo, it will be worth significantly more.
 
I personally think that Facebook will trade over $100 billion market cap a few years after it goes ipo.
 
That means Mark Zuckerberg, who owns about 24% of Facebook – valued at $5.5 billion based on the $23 billion market cap – will be worth $22 billion at the $100 billion market cap valuation.

A lesson on Ego and Risk

  
  Education
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ego-riskMost traders drawn to risk management focus on the external “how to” aspect of trading, vs. the inner aspect of emotions and psychology. This is where trouble begins.
• In the school model, one’s self-esteem is tied to being right. Avoiding mistakes, especially public mistakes becomes paramount. But in trading, one can be wrong in most choices and experience regular “outlier” events in the course of trading the markets. Traders must somehow learn that they will miss out or be incorrect regularly and still have a shot at great success. 
• Traders need to have a survival plan. Know when you will get out of a trade before you get in.
• If you don’t take the small loss today, your capital and trading career may not survive tomorrow.
• The most successful traders surrender their egos to not knowing the frequency or magnitude of any trend. They quiet their mind and follow their inner voice.
• Most of the world can’t keep their losses small. Professional traders and investors who’ve been around for decades are usually those who play the best defense. 

Four Basic Traits of Successful Investors

  
  Education
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1. They look at objective indicators. Removing the emotions from the investing process, they focus on data instead of reacting to events;Four Stages
2. They are Disciplined:  The data drives decision making with pre-established rules. External factors do not influence them;
3. They have Flexibility:  The best investors are open-minded to new ideas, or revisiting previous thoughts;
4. They are Risk adverse: Not always obvious to investors, it is a crucial part of successful investing.

Winning Attitude

  
  Education
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winningattitudeOne of the most important tools that a trader possesses is his or her mind. Attitude can either make or break you as a trader.

To become a successful trader it begins with believing in yourself and having a winning attitude.

Everyone wants to be a winner, at least they think so. Unfortunately, most are not willing to perform the tasks necessary to become a consistent winner.

Winners generally achieve success by being focused on a goal. Being focused allows winners to remain committed to the tasks at hand. Most winners perform a lot of hard work, including a willingness to deal with sometimes mundane duties. Most of all, winners perform with an “I am responsible for both my failures and successes” attitude. (more…)

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