- There is only one long term investment objective, maximum total after tax return.
- Success requires study and work. It’s harder than you think.
- Outperforming the majority of investors requires doing what they are not doing.
- Buy when pessimism is at its maximum, sell when optimism is at its maximum.
- Therefore, buy what most investors are selling.
- Buying when others have despaired, and selling when they are full of hope, takes fortitude.
- Bear markets aren’t forever. Prices usually turn up a year before the business cycle hits bottom.
- Popularity is temporary. When a sector goes out of fashion, it stays out for many years.
- In the long run, stock index prices fluctuate around the EPS trend line.
- Stock index earnings fluctuate around replacement book value for the stocks in the index.
- Buy what other people buy and you will succeed or fail as other people do.
- Timing: buy when short term owners have finished selling and sell when they’ve finished their buying, always opposing the fashion.
- Stock prices fluctuate more than values. So stock indexes will never produce the best total return performance.
- Focus on value because most investors focus on outlooks and trends.
- Invest worldwide.
- Stock price fluctuations are proportional to the square root of the price.
- Sell when you find a much better bargain to replace what you are selling.
- When your method becomes popular, switch to an unpopular method.
- Stay flexible. No asset or method is forever.
- Stock market investing takes more skill than any other kind of investing.
- A person can outperform a committee.
- If you begin with prayer, you will think more clearly and make fewer mistakes.
Archives of “long term investment” tag
rssTrading Wisdom – Trend Following
For most people, trend following is extremely counter-intuitive. Why? Because it’s human nature to look for bargains before buying. People tend to buy when it’s low and sell when it’s high. But, how many are bold enough to do the opposite by buying high and selling even higher? My guess is; not many. And what about risk management? Yeah, what about it? Remember the dot com bubble era? Out of all the people that got caught up in that frenzy, how many do you think even had a risk management plan in place? Hmmm…
Back in those days, I’ve never even heard of a stop loss. We all just jumped in blindly with dreams of making it big. And a lot of us got burned. Really bad. All the warning signs where there and yet we chose to ignore it. We foolishly rode our stocks all the way down and in the process, destroying every little glimmer of hope that we had for a turn-around. A lot of us lost 80-90% of our so-called “long term investment.” It’s tragic. But we can all learn from this valuable lesson.
Trend following is a life philosophy. It works in trading and it also works in daily life. It’s simply a matter of sticking with what works and getting rid of what’s not. That’s it! It’s a deceptively simple little system that can be applied into all aspects of your life. And if you follow this line of thought, I guarantee that you will see dramatic improvements. You just can’t help but to get better because ultimately, what are you left with in the end? That’s right, WINNERS!
Poker and Trading…Some Rules Applicable to Both.
Pay Attention…and It Will Pay You. Concentrate on everything when you are playing/trading. Watch and listen; remember to do both and relate the two.
Understand When to Play Aggressively…It’s the Winning Way. Don’t be a tight or a loose player/trader; be a solid one and recognize when it is time to press your bets/positions. To attain superior returns in poker and investing over the long run, grind it out (in stocks until you are up 30%-40%, and then if you have convictions, go for a 100% year). If you can avoid losing and put together a few 100% years, you can achieve outstanding long-term investment performance.
Tells: Look For Them and You Will Find Them. Poker players and stock markets have tells — giveaway moves that are very revealing. Learn to recognize them. History is your textbook.
ESP…It’s a Jellyroll. In those rare instances when all your card knowledge and market judgment/knowledge leaves you in doubt, go with your strong feelings and not against it.
Honor: A Gambler/Trader’s Ace-in-the-Hole. A good reputation and respect from others will put you in good stead.
Be as Competitive as You Can Be. Go into a poker game and into a trade with the idea of completely destroying your opponent or scoring a major investment coup. If you win a pot or make a successful trade, nearly always play the next pot or make the next trade shortly thereafter — within reason. Although the cards and trades might break even in the long run, rushes do happen and momentum often feeds upon itself. When you earn the right to be aggressive, you should be aggressive. When one has a tremendous conviction in a poker hand or trade, you have to go for the jugular.
Art and Science…It takes Both. Both activities are more art than science — that’s why they are so difficult to master. Knowing what to do is about 10% of the game. Knowing how to do it is the other 90%.
Money Management. The same sound principles of money control apply to the business of tournament/professional poker and to successful investing. The way to build long-term returns or poker winnings is through preservation of capital and home runs.
The Important Twins of Poker/Investing, Patience and Staying Power. Come to the poker table or to the markets with enough time to stay and play for a while.
Alertness is a Key. You must stay alert at all times.
So is Discipline.
Never Let Your Mind Dwell on Personal Problems. Never play/trade when you are upset. Make a conscious and constant effort to discover any leaks in your play, and then eliminate them.
Control Your Emotions. Allowing your confidence to be shaken can turn a simple losing streak into a terrible case of going bad. Keep your emotions in check. When you lose a pot or make a poor investment decision, get up, walk around the chair or take some deep breaths. Don’t lose your poise. If a trade or poker hand does not work out, walk away from the position/hand. Be confident enough about your ability to win afterwards.
Quotes for Traders
- ‘Predicting rain does n’t count; building arks does’: Warren Buffett’s Noah Rule.
- “To know and not to do, is not yet to know” – Courtesy of Tom Witters.
- ‘It’s easy to have faith in yourself and have discipline when you’re a winner, when you’re number one. What you got to have is faith and discipline when you’re not a winner.’ – Vince Lombardi
- ‘After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!’ – Jesse Livermore
Fear
- ‘Never let fear of striking out, get in your way’: Babe Ruth.
Perspectives
- ‘It’s tough to make predictions, especially about the future,’ – Lawrence Peter ‘Yoggi’ Berra.
- “go as far as you can see, and when you get there , you will see further.” –
- anonymous
- ‘Don’t worry what others think… They don’t do it very often’ – Courtesy of Mark Carstens.
- “A little learning is a dangerous thing, but we must take that risk because a little is as much as our biggest heads can hold.” – George Bernard Shaw.
- “Those who cannot remember the past are condemned to repeat it” – George Santayana.
- “Glory is fleeting but obscurity is eternal” – Napoleon
- ‘A long term investment is when I break even.’ – Courtesy of David Wong.
- “There are many truths, but only one reality” – Courtesy of Robin Farrell.
- ‘It’s not whether you get knocked down, it’s whether you get up.’ – Vince Lombardi.
- ‘We would accomplish many more things if we did not think of them as impossible.’ – Vince Lombardi
- “Vision – It reaches beyond the thing that is, into the conception of what can be. Imagination gives you the picture. Vision gives you the impulse to make the picture your own.” – Robert Collier.
- “If you’re 30 minutes into the game and you don’t know who the patsy is, you’re the patsy.” – Courtesy of Saranjot Dosanjh.
- ‘Price is observable and objective while value is perceived and subjective’. – John Murphy.
- ‘In theory, there is no difference between theory and practice. In practice there is.’ – Yogi Berra.
- “As a rule, Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works…. The Failure of great banks… and mercantile firms…are the symptoms incident to the disease, not the disease itself.” – John Stuart Mill (1867).
- ‘You need three bear markets to know what to do. The first nearly wipes you out, the second you learn how to survive and the third you take by the scruff of the neck and enjoy it.’ – Crispin Odey of Odey Asset Management.
- “Never in recorded history, has the supply of capital not overwhelmed the supply of opportunity.” – Joseph Lassiter .
- ‘You only live once but if you work it right, once is enough’. – Joe E. Lewis.
- “If you really know whats going on, you don’t even have to know whats going on to know whats going on… You can ignore the headlines because you anticipated them months ago” – Michael Steinhardt.
- ‘Another lesson I learned early is that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.’ – Jesse Livermore.
- “Economic history is a never-ending series of episodes based on falsehoods and lies, not truths. It represents the path to big money. The object is to recognize the trend whose premise is false, ride that trend, and step off before it is discredited.” – Soros.
On Losses (and Profits).
- ‘Tradings only real secret is… The best loser is the long-term winner’ – Phantom
- “Trading is a losing game, the best loser is the long-term winner” – Anonymous.
- ‘Losses can either be lost money, or tuition in the school of trading’ – Courtesy of Mark Moskowitz.
- ‘The worst advice I use to get was. – ‘No one went broke taking a profit’’. – Courtesy of John Berra.
- “It seems that the necessary thing to do is not to fear mistakes, to plunge in, to do the best that one can, hoping to learn enough from blunders to correct them eventually.” – Abraham Maslow
- ‘“Learn to like your losses”. Why? Because they are small!’ – Courtesy of Stuart A.Brown.
- “One common adage…that is completely wrongheaded is: You can’t go broke taking profits. That’s precisely how many traders do go broke. While amateurs go broke by taking large losses, professionals go broke by taking small profits.” – William Eckhardt.
- “Its not about being right or wrong, rather, its about how much money you make when you’re right and how much you don’t lose when you’re wrong.” – George Soros.
- “The first loss is the best loss.” – Jim Rogers.
- “Losers average Losers”…Paul Tudor Jones.
- “You learn nothing from your winners and everything from your losers.” – Courtesy of Jeff Horn.
- ·“To become a Master Trader, you must first be a successful loser.” – Jeff Horn.
Ego
- “Don’t be a hero. Don’t have an ego. Always question yourself and your ability. Don’t ever feel that you are very good. The second you do, you are dead.” – Paul Tudor Jones
Personal Responsibility and Self-awarenss (more…)
Day Trading Terms
Advisor – the one who charges money for a piece of stock advice to cover his/her losses on the market.
Advisory Service – an advisor who lost a considerable amount of money and started new business.
Afternoon – a daily chance to give back the money you made that morning (see Friday).
Apprentice – anyone who peers at your screen shortly after you closed a profitable deal.
Average Down – what you have to do if you opened a long position and had to go to the bathroom.
Average Up – what you have to do if you opened a short position and had to go to the bathroom.
Bad Trade/Stupid Trade – an unprofitable deal that someone else carries out which does not fit your trading strategy.
Bottom – (when you have an open long position) the spot where you give up averaging down and sell; (when you have an open short position) the spot where the book recommends you to open a short position.
Break – a pause you take when you have either 2 profitable or 5 unprofitable deals in a row. (more…)
Warren Buffett not lured by gold
Everybody is bullish on gold these days. You even have outfits like ‘Cash For Gold’ peddling their trades at your local mall. But historically, gold has never been a great long term investment.
While the love for gold can take this commodity to $3,000, be sure to get off the train before the top. Because once it goes down, it stays down for decades.
NEW YORK (Commodity Online): A gold boom is on and despite the ‘bubble talk’ on gold, every investor worth the name is running after the shining metal. From Jim Rogers to John Paulson, most investors or investing analysts have argued that gold is the best investment bet against rising inflation and declining US dollar value. They all are waiting for a gold bull run that will go past $2000 per ounce in 2010.
But Warren Buffett, the world’s richest investor and billionaire businessman, has not yet fallen for gold. His ideas on gold and why he is not interested obsessed with investing in the shining yellow metal should be an eye opener for all those who are running after gold.
Here are some reasons why gold is not luring Warren Buffett, and why there are better, erudite and lasting investing options than gold.
”Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” Warren Buffett. (more…)
TRADING QUOTES
- ‘Predicting rain does n’t count; building arks does’: Warren Buffett’s Noah Rule.
- “To know and not to do, is not yet to know” – Courtesy of Tom Witters.
- ‘It’s easy to have faith in yourself and have discipline when you’re a winner, when you’re number one. What you got to have is faith and discipline when you’re not a winner.’ – Vince Lombardi
- ‘After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!’ – Jesse Livermore
Fear
- ‘Never let fear of striking out, get in your way’: Babe Ruth.
Perspectives
- ‘It’s tough to make predictions, especially about the future,’ – Lawrence Peter ‘Yoggi’ Berra.
- “go as far as you can see, and when you get there , you will see further.” –
- anonymous
- ‘Don’t worry what others think… They don’t do it very often’ – Courtesy of Mark Carstens.
- “A little learning is a dangerous thing, but we must take that risk because a little is as much as our biggest heads can hold.” – George Bernard Shaw.
- “Those who cannot remember the past are condemned to repeat it” – George Santayana.
- “Glory is fleeting but obscurity is eternal” – Napoleon
- ‘A long term investment is when I break even.’ – Courtesy of David Wong. (more…)