I recommend this video [see video below] about LTCM. Very interesting. (related to risk management and black swan events).
Archives of “long term capital management” tag
rss7 Things -Traders Must Accept
- You will have to accept that over the long term at best only 60% of your trades will be winners. It will be much less with some strategies.
- Accept that the key to being a successful trader is having big wins and small losses, not big bets paying off. Big bets can lead quickly to you being out of the game after a string of losses.
- Accept that the best traders are also the best risk managers, even the best traders do not have crystal balls so they ALWAYS manage their capital at risk on EVERY trade.
- If you want to be a better trader then you need to accept that trading smaller and risking less is a key to your success. Risking 1% to 2% of your capital on any single trade is the first step to winning at trading. Use stops and position sizing to limit your losses and get out when your losses grow to these levels.
- You must accept that you will have 10 trading losses in a row a few times each year. The question is what your account will look like when they happen.
- You have to accept that you will be wrong, a lot. The sooner you accept you are wrong and change your mind the better off you will be.
- If you really want to be a trader then you are going to have to accept the fact that trading is not easy money. It is a profession like any other and requires much work and effort and even years to become proficient. Expect to work for free and pay tuition to the markets through losses until you learn to trade consistently and profitably.
Trading is about math, ego control, risk management, psychology, focus, perseverance, passion, and dedication. If you are missing one, you may not make it. Trade wisely my friends.
7 Things Each Trader Has To Accept
If you truly are serious about being a trader then there are seven things that you will have to accept.
You will have to accept that over the long term at best only 60% of your trades will be winners. It will be much less with some strategies.
Accept that the key to being a successful trader is having big wins and small losses, not big bets paying off. Big bets can lead quickly to you being out of the game after a string of losses.
Accept that the best traders are also the best risk managers, even the best traders do not have crystal balls so they ALWAYS manage their capital at risk on EVERY trade.
If you want to be a better trader then you need to accept that trading smaller and risking less is a key to your success. Risking 1% to 2% of your capital on any single trade is the first step to winning at trading. Use stops and position sizing to limit your losses and get out when your losses grow to these levels.
You must accept that you will have 10 trading losses in a row a few times each year. The question is what your account will look like when they happen.
You have to accept that you will be wrong, a lot. The sooner you accept you are wrong and change your mind the better off you will be.
If you really want to be a trader then you are going to have to accept the fact that trading is not easy money. It is a profession like any other and requires much work and effort and even years to become proficient. Expect to work for free and pay tuition to the markets through losses until you learn to trade consistently and profitably.
10 Quotes from: Where Are the Customers’ Yachts?
Markets can be very violent on the downside. The old saying — Markets ride the escalator to the top and the elevator to the bottom — is still quite relevant.
The past week or so has been a rocky one to say the least. This is the time to review the lessons learned from the past. The alternative of listening to hysterical nonsense from forecasters will only lead you to heaps of trouble.
Where the Customers’ Yachts? is a timeless relic which should be read by anyone who professes the slightest interest in finance. Though written after the infamous 1929 crash, its contents are completely applicable in 2016. In the words of Mike Bloomberg in his review of this classic tale, “The more things change, the more they remain the same. Only the names have been changed to protect the innocent.”
Here are ten quotes that can serve as a force field to ward of investment charlatans. Ignore these quotes at your own peril:
- Wall Street Greed – “At the close of the day’s business, they take all the money and throw it up in the air. Everything that sticks to the ceiling belongs to the clients.” Merrill Lynch Structured Notes, anyone? Yes, the customers got to keep 5%.
- The Value of Market Predictions – “It seems that the immature mind has a regrettable tendency to believe, as actually true, that which it only hopes to be true.” 90% chance ‘Remain’ wins the referendum… OOPS!
- Financial Salesman Having an Answer to the Unanswerable – “Now if you do someone the single honor of asking him a difficult question, you may be assured that you will get a detailed answer. Rarely will it be the most difficult of all answers – ‘I Don’t Know.’” Market pundits who were completely wrong on Brexit, telling you what to do now.
Short Term Trading and Day Trading Is No Nostrum
Consider an excerpt from Trend Following:
When you trade more or with higher frequency, the profit that you can earn per trade decreases, whereas your transaction costs stay the same. This is not a winning strategy. Yet, traders still believe that short-term trading is less risky. Short-term trading, by definition, is not less risky, as evidenced by the catastrophic blowout of Victor Niederhoffer and Long Term Capital Management (LTCM). Do some short-term traders excel? Yes. However, think about the likes of whom you might be competing with when you are trading short term. Professional short-term traders, such as Jim Simons, have hundreds of staffers working as a team 24/7. They are playing for keeps, looking to eat your lunch in the zero-sum world. You don’t stand a chance.
Unfortunately, the flaws in day trading are often invisible to those who must know better. Sumner Redstone, CEO of Viacom, was interviewed recently and talked of constantly watching Viacom’s stock price, hour after hour, day after day. Although Redstone is a brilliant entrepreneur and has built one of the great media companies of our time, his obsession with following his company’s share price is not a good example to follow. Redstone might feel his company is undervalued, but staring at the screen will not boost his share price.
Accept These 7 Things -If U Are A Trader
If you truly are serious about being a trader then there are seven things that you will have to accept.
You will have to accept that over the long term at best only 60% of your trades will be winners. It will be much less with some strategies.
Accept that the key to being a successful trader is having big wins and small losses, not big bets paying off. Big bets can lead quickly to you being out of the game after a string of losses.
Accept that the best traders are also the best risk managers, even the best traders do not have crystal balls so they ALWAYS manage their capital at risk on EVERY trade.
If you want to be a better trader then you need to accept that trading smaller and risking less is a key to your success. Risking 1% to 2% of your capital on any single trade is the first step to winning at trading. Use stops and position sizing to limit your losses and get out when your losses grow to these levels.
You must accept that you will have 10 trading losses in a row a few times each year. The question is what your account will look like when they happen.
You have to accept that you will be wrong, a lot. The sooner you accept you are wrong and change your mind the better off you will be.
If you really want to be a trader then you are going to have to accept the fact that trading is not easy money. It is a profession like any other and requires much work and effort and even years to become proficient. Expect to work for free and pay tuition to the markets through losses until you learn to trade consistently and profitably.
How two of history’s greatest investors deal with losses
It’s been a tough month for investors. As of yesterday, roughly half of the stocks in the S&P 500 have fallen into bear markets, with declines greater than 20%. International stock markets have fallen dramatically, with the losses accelerating on the heels of the latest Asian currency “event”.
We’ve seen stuff like this before. There is a worthwhile lesson in considering how a pair of history’s greatest investors have dealt with this kind of thing in the past.
On the surface, Warren Buffett and David Tepper don’t have a lot in common. One runs a diversified conglomerate and reinvests the insurance premiums into both long-term common stock positions and outright acquisitions of great companies. The other manages a hedge fund and aggressively trades in the markets each day.
But they have something in common that is worth considering today: Both Warren Buffett and David Tepper know that volatility is where returns come from and the losses of today set up the outsized gains of tomorrow. They’ve “lost” some money on the way to earning tons of it.
In the summer of 1998, there was a currency crisis that originated in the far east and eventually wound its way around the globe, culminating in the devaluation of the ruble and the blow-up / bailout of the first systemically risky hedge fund in history, Long Term Capital. Both Buffett and Tepper took quite a beating during this so-called “Asian Contagion” event.
As Nick Murray explains, Warren Buffett was down quite a bit that summer.
$6,200,000,000
A very large sum of money, wouldn’t you say? Now what, you ask, does it represent?
It is roughly how much Warren Buffett’s personal shareholdings in his Berkshire Hathaway, Inc. declined in value between July 17 and August 31, 1998. And now for the six billion dollar question. During those forty-five days, how much money did Warren Buffett lose in the stock market?
The answer is, of course, that he didn’t lose anything. Why? That’s simple: he didn’t sell.